Exchange Rate Forecasting Model And Its Application

The exchange rate, as a macroeconomic variable, is influenced by thenational economy, inflation, interest rate and economic policy, as well asinfluences many aspects of a country's economy, such as trade, the flow ofintemational capital, price variation, national income and its distribution,the development of domestic industry productivity and economic structure.The core issue of research into exchange rate is to know how it influenceseconomy. But first an important premise must be obeyed, that is, toexcavate the mechanism manipulating exchange rate and the relationshipbetween exchange rate and other economic variables, and to master itsdetermination and forecasting model. Or else, we can't know the impetusfor exchange rate variation, then solve the related problems and diminishits negative influence. This thesis will find suitable models to describeRMB exchange rate through analyzing the factors affecting it. Ultimatelythe thesis applies the obtained conclusion to reality, which also embodiesthe thesis' aim.The thesis is divided into three parts.Part I discusses the exchange rate determination theory and model.Regarding the domestic and abroad observation about exchange ratevariation, many factors are concemed with the determination of exchangerate, such as the factors that can influence merchandise and labor, financialcapital and society psychological expectation, etc. The thought of this partis: if we can select the most influential ones from many factors, andanalyze the quality relationship between such factors and RMB exchangerate, by finding the direction and degree they influence RMB exchangerate, then the exchange rate determination model would be set up.Following such a thought and regarding the three phases during ChineseRMB exchange rate system reformation, we can get the conclusions afteranalysis as follows.Although the exchange rate variation in China as well as in othercountries, can抰 avoid being influenced by such factors like nationaleconomy, inflation, interest rate, economic policy and market expectation,the determinative factors are not the same during different phase ofChinese exchange rate system. From 1979 to 1994, the main reference fordeciding RMB exchange rate is the export cost, because the exchange ratepolicy is taken as a principal choice by Chinese government to better theinternational balance status before the reformation of foreign exchangerate and exchange system. Through the cointegration test for RMBexchange rate and export cost, the long-term equilibrium exists betweenthese two variables during this period. But meantime the variation wasmainly caused by planned economy model, so it lacked in regularity andcould not be described by models. Since 1994, a new exchange rate systemhas acted in China, which is a single, managed and floating exchange ratesystem on the basis of market supply and demand. The RMB exchangerate under new system is basic determined by two factors: the governmentinterference policy and the market supply and demand situation. Fourmodels are presented, following the way from simplicity to complication.The last one is kind of comprehension of the results of former three ones.These models can pass the test in reality, so they are proved to be practicaland useful.Part 11 discusses the RMB exchange rate short-term forecastingmodel. Metrology economics and time series knowledge is used here todiscuses the feasibility of forecasting model. First by comparing theforeign exchange market in China and in America, we can see that thingsare different in these markets. The trades in Chinese foreign exchangemarket are mainly not speculative ones. This market is a transformationplace for RMB and foreign exchange, and is suitable for Chinese foreigntrades and foreign exchange market is filled with speculative trades. Thenby comparing the exchange rates of RMB against US Dollar and Yen inChin閽...