Abstract
ABSTRACT Under the managed floating exchange rate regime, onshore exchange rates often do not reflect the ‘free-market’ level due to regulation and intervention. In this paper, we derive the implied ‘free-market’ exchange rates from gold prices and quantify the strength of market force guiding the onshore exchange rates as a new predictor. Using machine learning methods to make forecasts, we find that the inclusion of this new predictor improves the forecasting performance of one-day-ahead onshore exchange rate returns across all models.
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