Analysis of the influence of international benchmark oil price on China’s real exchange rate forecasting

Abstract

The exchange rate forecasting plays an important role in the economic and financial fields. Oil price fluctuations have a great impact on the country’s economic activity. Based on the theory of exchange rate determination, this paper combines quantitative and qualitative research methods to study the impact of three major international benchmark crude oil price changes on the real effective exchange rate forecast of the RMB. In this paper, the correlation between the three international benchmark oil prices and the real exchange rate is discussed through the hybrid Copula function, and then the bivariate neural network model is constructed. Brent crude oil price having the greatest degree of correlation with China’s real exchange rate, the Kendall correlation coefficient and the Spearman correlation coefficient are 0.4327 and 0.5792. MAPE values of the three Brent variable models in the one-step prediction reached 0.54%, 0.51%, and 0.54%. The results of the experiments and discussions shows that the bivariate model has excellent forecasting performance, and indicates that the continuous fluctuations in oil prices have a great impact on the exchange rate, and that oil price information has provided effective help for China’s real exchange rate forecasting.