Forecasting the Chinese Yuan-US Dollar Exchange Rate under the New Chinese Exchange Rate Regime

Imad A. Moosa
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Imad A. Moosa: Department of Accounting and Finance, Monash University, Australia

International Journal of Business and Economics, 2008, vol. 7, issue 1, 23-35

Abstract: Two models are specified, estimated, and used to generate out-of-sample forecasts over the period since China announced a shift in exchange rate policy from a simple peg to the US dollar to a basket peg. The results show that the model that is based on a crawling peg is far superior to the model that is based on a basket peg. It is also shown that trading the Chinese yuan versus the US dollar is more profitable than otherwise when trading is based on the assumption of a crawling peg, in which case buy and hold is the best strategy. It is concluded that China must be using a crawling peg, which is not good news for the US but may be good news for foreign exchange traders.

Keywords: Chinese yuan; exchange rate regimes; forecasting (search for similar items in EconPapers)
JEL-codes: F31 F33 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (5)

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