Modeling Volatility of Exchange Rate of Chinese Yuan against US Dollar Based on GARCH Models

Abstract

This study aims to model the characteristics of volatility of the exchange rate of the Chinese Yuan, based on the daily data of CNY and CNH over the period from August 23, 2010 to September 10, 2013, in the backdrop of RMB internationalization. By introducing both symmetric and asymmetric models of the generalized autoregressive conditional heteroscedastic (GARCH) family, we use the daily data to estimate the parameters of each model. Finally, the paper assesses these two models by concluding that these two models can capture most characteristics of the exchange rate volatility and both are adequate to model the exchange rate volatility series.