The Test and Estimation of USD/RMB Exchange Rate Volatility

In the literature, the different periods of USD/RMB Exchange Rate time series are used for the estimation of USD/RMB Exchange Rate volatility, and the different empirical evidences are showed. Some of evidences even become contradicted. We argue that the above differences may be due to structural breaks of USD/RMB Exchange Rate volatility. To examine the above argument, we apply corresponding methods to test the existence of structural breaks of SPOT market and find that structural breaks occur. Some economic explanations are further given. Based the examined structural breaks, we divide the whole time series of USD/RMB Exchange Rate into 8 sub-series and use EGARCH model to estimate the corresponding Exchange Rate volatility. The results imply that the estimations for 8 sub-series are satisfying while the performance for the whole series is poor. The above empirical results indicate that the test of structural breaks is a premise for the estimation of USD/RMB Exchange Rate volatility.