Incorporating the RMB internationalization effect into its exchange rate volatility forecasting

Shusheng Ding, Tianxiang Cui and Yongmin Zhang

The North American Journal of Economics and Finance, 2020, vol. 54, issue C

Abstract: Recently, the Chinese government has launched the renminbi (RMB) internationalization policy as an impetus to foster China’s global economic integration. The RMB internationalization effect on China’s economy and the RMB exchange rate has attracted massive attention in recent financial research. In this paper, we adopt a genetic programming (GP) method to generate new RMB exchange rate volatility forecasting models incorporating the RMB internationalization effect. Our models are proved to have significant accuracy improvement in predicting both RMB/US dollar and RMB/euro exchange rate volatilities, compared with standard GARCH volatility models, which are incapable of capturing the RMB internationalization effect. Furthermore, our models display salient practical implications for policy makers to formulate monetary policies and currency traders to design effective trading strategies.

Keywords: RMB internationalization; Exchange rate; Volatility forecasting; Genetic programming (search for similar items in EconPapers)
JEL-codes: E47 F31 G15 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940819302840

DOI: 10.1016/j.najef.2019.101103

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