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

Author

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  • Imad A. Moosa

    (Department of Accounting and Finance, Monash University, Australia)

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.

Suggested Citation

  • Imad A. Moosa, 2008. "Forecasting the Chinese Yuan-US Dollar Exchange Rate under the New Chinese Exchange Rate Regime," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 7(1), pages 23-35, April.
    • Handle: RePEc:ijb:journl:v:7:y:2008:i:1:p:23-35
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    References listed on IDEAS

    as
    1. Ronald McKinnon, 2007. "Why China Should Keep Its Dollar Peg," International Finance, Wiley Blackwell, vol. 10(1), pages 43-70, March.
    2. Ashley, R & Granger, C W J & Schmalensee, R, 1980. "Advertising and Aggregate Consumption: An Analysis of Causality," Econometrica, Econometric Society, vol. 48(5), pages 1149-1167, July.
    3. Harvey, A C, 1985. "Trends and Cycles in Macroeconomic Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(3), pages 216-227, June.
    4. Imad A. Moosa, 2005. "Exchange Rate Regimes," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-50442-4, October.
    5. Nouriel Roubini, 2007. "Why China Should Abandon Its Dollar Peg," International Finance, Wiley Blackwell, vol. 10(1), pages 71-89, March.
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    Cited by:

    1. Tian, Lei & Chen, Langnan, 2013. "A reinvestigation of the new RMB exchange rate regime," China Economic Review, Elsevier, vol. 24(C), pages 16-25.
    2. Vitalie Ciubotaru, 2012. "Identifying the De Facto Exchange Rate Regime for Moldova: A State-Space Approach," Discussion Papers in Economics and Business 12-10, Osaka University, Graduate School of Economics.
    3. Jie Sun, 2010. "Retrospect of the Chinese Exchange Rate Regime after Reform: Stylized Facts during the Period from 2005 to 2010," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 18(6), pages 19-35, November.
    4. Liu, Jinyu & Wang, Zhengwei & Zhu, Wuxiang, 2021. "Does privatization reform alleviate ownership discrimination? Evidence from the Split-share structure reform in China," Journal of Corporate Finance, Elsevier, vol. 66(C).
    5. Cao Emily Yixuan & Cao Yong & Prasad Rashmi & Shen Zhengping, 2011. "U.S.-China Exchange Rate Negotiation: Stakeholders' Participation and Strategy Deployment," Business and Politics, De Gruyter, vol. 13(3), pages 1-25, October.

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    More about this item

    Keywords

    Chinese yuan; exchange rate regimes; forecasting;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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