Incorporating the RMB internationalization effect into its exchange rate volatility forecasting

Shusheng DING, Tianxiang Cui, Yongmin Zhang

Research output: Journal PublicationArticlepeer-review

4 Citations (Scopus)

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.

Original languageEnglish
Article number101103
JournalNorth American Journal of Economics and Finance
Volume54
DOIs
Publication statusPublished - Nov 2020

Keywords

  • Exchange rate
  • Genetic programming
  • RMB internationalization
  • Volatility forecasting

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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