RMB Exchange Rate Analysis And Forecast Based On The EMD-NBE Hybrid Model

The economic exchange between the domestic market and the international market becomes more and more frequent with the development of Chinese economy.The RMB plays a very important role in this exchange.The Chinese currency joined the Special Drawing Rights(SDR)currency basket in October 10,2016.It means that the RMB is becoming more and more international and market-oriented.Forecasting the exchange rate of RMB is very important not only to the theoretical research of exchange rate but also to the internationalization process of RMB.First,this paper analyzes the macro-economy and the documents from the Central Economic Work Conference,and studies the monetary policy of the People's Bank of China and the changes in international economic environment.This paper concludes that RMB will continue to depreciate in 2017.The volatility will not exceed 7.67%.The USD/RMB exchange rate will fluctuate in the range between 6.82 to 6.98.The daily volatility will be under 100 basis point.It also finds that the analysis of fundamentals cannot provide accurate forecasting results.The paper chooses the USD/CNY exchange rate as the standard for the exchange rate of the RMB and uses the EMD algorithm to reduce and decompose the sequence's noise.It transforms the series into input variables and output variables using the TSshift function.The paper proposes a new hybrid forecasting model based on the Empirical Mode Decomposition(EMD),Nonlinear Auto Regressive models with Exogenous Inputs,Back-Propagation Neural Network and Extreme Learning Machine: the EMD-NBE model.To validate the method,the proposed hybrid model was compared to the ARIMA,BPNN,ELM and wavelet neural network.The results show that the proposed hybrid model is the most accurate at forecasting the RMB exchange rate.This paper forecasts the USD/CNY exchange rate in quarter one of 2017 based on the EMD-NBE hybrid model,and predicts that the USD/RMB exchange rate would decrease by a small amount(i.e.,the RMB would appreciate by a small amount)and fluctuate in the range of6.831-6.963.The prediction is largely in line with the outcome from the fundamental analysis.