Journal article
Forecasting China's foreign exchange reserves using dynamic model averaging: The roles of macroeconomic fundamentals, financial stress and economic uncertainty
The North American journal of economics and finance, v 28, pp 170-189
01 Apr 2014
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
We develop models for examining possible predictors of growth of China's foreign exchange reserves that embrace Chinese and global trade, financial and risk (uncertainty) factors. Specifically, by comparing with other alternative models, we show that the dynamic model averaging (DMA) and dynamic model selection (DMS) models outperform not only linear models (such as random walk, recursive OLS-AR(1) models, recursive OLS with all predictive variables models) but also the Bayesian model averaging (BMA) model for examining possible predictors of growth of those reserves. The DMS is the best overall across all forecast horizons. While some predictors matter more than others over the forecast horizons, there are few that stand the test of time. The US-China interest rate differential has a superior predictive power among the 13 predictors considered, followed by the nominal effective exchange rate and the interest rate spread for most of the forecast horizons. The relative predictive prowess of the oil and copper prices alternates, depending on the commodity cycles. Policy implications are also provided. (C) 2014 Elsevier Inc. All rights reserved.
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Details
- Title
- Forecasting China's foreign exchange reserves using dynamic model averaging: The roles of macroeconomic fundamentals, financial stress and economic uncertainty
- Creators
- Rangan Gupta - University of PretoriaShawkat Hammoudeh - Drexel UniversityWon Joong Kim - Konkuk UniversityBeatrice D. Simo-Kengne - University of Pretoria
- Publication Details
- The North American journal of economics and finance, v 28, pp 170-189
- Publisher
- Elsevier
- Number of pages
- 20
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Web of Science ID
- WOS:000337072300012
- Scopus ID
- 2-s2.0-84901479762
- Other Identifier
- 991019167624004721
UN Sustainable Development Goals (SDGs)
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- Collaboration types
- Domestic collaboration
- International collaboration
- Web of Science research areas
- Business, Finance
- Economics