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Research on Currency and Exchange Rate

Research on Currency and Exchange Rate

U.S. exchange rate politics and the conflict on RMB exchange rate

XIANG Weixing;WANG Guannan

Northeast Asia Forum,2015,Vol 24,No. 02

【Abstract】 Since the breakdown of Bretton Woods system, the issues about USD exchange rate have become increasingly prominent, which led to major adjustments of U.S. exchange rate policies. Over the course of time, U.S. exchange rate politics have evolved and become a major reason for the rising exchange rate protectionism when “weak dollar” policy was implemented. The ten-year argument on RMB exchange rate between China and U.S. is a reflection of this politics, a process of fights and compromises over the issues of exchange rate policies among different subjects. The conflict has nothing to do with either the monetary finance or the trade, but it is virtually reflective of exchange rate politics. Though unable to stay away from the impact of the exchange-rate politics in the short term, China should liberalize the formation mechanism of RMB exchange rate through accelerating the institutional reforms and structural adjustments as well as strengthen negotiation, coordination and cooperation with the U.S. government.

Latvia’s entering the Eurozone and potential challenges

SUN Chenwen

Russian Central Asian & East European Market,2014,No. 06

【Abstract】 Latvia has immediately started its course of political and economic transition since its independence in 1991. Since the adoption of the new Constitution in 1992, Latvia has been a nation with its politics characterized by separation of powers, a multi-party political system and ideological pluralism. The political transition in Latvia had given rise to political chaos with a negative impact on the organization of cabinet. Since 2005, the political system of Latvia grew mature, both presidential election and parliamentary election could proceed in an orderly way by the standards of the European Union, and the nation moved forward to a phase of stability and development. As for the economic transition in Latvia, it is a move from a planned economic system in the Soviet Union period to a market-oriented economy. Latvia primarily focused on developing economic and trade ties with other European countries, and meanwhile privatized its state-owned assets. It successfully joined the World Trade Organization (WTO) in 1999 and became a member of the European Union (EU) and the North Atlantic Treaty Organization (NATO) in 2004. Since then, Latvia has planned to enter the Eurozone, and implemented the economic policy of controlling domestic demand and inflation. Nevertheless, impacted by the financial crisis, Latvia’s economy shows a trend of declining. Under the deflation policy, Latvia got the financial deficit and deflation rate under control and successfully entered the Eurozone in 2014.

RMB appreciation, heterogeneity of commodities and adjustment of export structure

ZHANG Huiqing

Journal of International Trade,2015,No. 02

【Abstract】 Based on the HS 6-digit commodities data of Chinese exports to top 20 trading partners during the period 2005-2012, this paper assesses the influence of RMB appreciation on China’s export commodity structure and its transmission mechanism by using a two-stage estimation combining the sample selection model with Hausman-Taylor AR (1) regression. The findings reveal that RMB appreciation restricts the growth of gross export, but increases the export proportion of high-technology products and drives export commodity structure to superior levels. At the same time, the negative impacts of RMB appreciation on the medium-technology manufactures are more intense than natural resource-based products, driving the export commodity structure to inferior levels. The structure adjustment effects of RMB appreciation function mainly through the transmission mechanism of cost factor. The difference of heterogeneous commodities in cost structure determines difference in the degree of benefit from cost saving due to domestic currency appreciation and then induces the distinct changes in export price and export scale, finally leading to the dynamic adjustment of export commodity structure.

A political cause of RMB exchange rate volatility:research based on the spillover effects of US political cycles

ZHU Mengnan;ZHAO Qian;WANG Yuguang

Management World,2015,No. 04

【Abstract】 RMB exchange rate volatility is affected by not only economic factors but also political factors at home and aboard. This study firstly analyzes the transmission of the effects of political cycles to RMB exchange rate, and then builds a model for the spillover effects of political cycles. After empirical analysis, we get the following findings. (1) US political cycles have direct effects on RMB exchange rate in the short run, and such effects are mainly transmitted via regulation and capital flow. (2) The RMB appreciation rate changes periodically in accordance with US presidential election and mid-term election. It significantly decreases in the first year after a new US president takes office, but significantly rises in the first year after the mid-term election. (3) Though the effects of US political cycles are not affected by the change of the party in power, they are greatly affected by the unity of the US President and Congress, namely that whether the two branches are controlled by the same party. This study not only extends the research on the influencing factors of RMB exchange rate to the political field, but also builds a new model to analysis the impact of political factors on RMB exchange rate volatility, thus providing a new line of thinking for fully understanding the external environment of the RMB exchange rate reform.

Macroeconomic effects driven by the coordinated promotion of interest rate and exchange rate liberalization reform

XIAO Weiguo;CHEN Yu;ZHANG Chenran

Journal of International Trade,2015,No. 08

【Abstract】 This paper establishes a 4-sector dynamic stochastic general equilibrium (DSGE) model to test the output and inflation response driven by the coordinated promotion of interest rate and exchange rate liberalization reform when the domestic economy suffers from various shocks. The results show that when the domestic economy suffers from positive shocks of domestic interest rate and technology, a certain degree of regulation on interest rate and exchange rate will be helpful for the stabilization of economic growth and price level; when the domestic economy suffers from positive shocks of foreign interest rate and technology, accelerating the liberalization may offset the adverse impacts from the external shocks. When the domestic economy suffers from negative shocks of both foreign and domestic interest rate, promoting the growth and stabilizing the inflation can not be achieved in liberalization acceleration at the same time. Therefore, in order to ensure sound macroeconomic operation, Chinese government and monetary authority need to always pay close attention to the main shocks the economy faces, and promote flexibly interest rate and exchange rate liberalization reform according to the actual economic situation.

The future of the dollar

Richard N. Cooper;XU Jia

Northeast Asia Forum,2016,Vol 25,No. 01

【Abstract】 This paper examines the international role of the US dollar, a national currency, about which discomfort has been expressed by a number of observers. Can the US dollar be replaced in its international role? The euro and more recently the RMB have been suggested as possible alternatives. The paper argues that essentially on technical grounds, based on the size and liquidity of financial markets as well as the network externalities already enjoyed by the US dollar, neither the euro nor the RMB could easily displace the US dollar in the next two decades, although one or both may increasingly supplement it. The paper then examines the pros and cons of deliberate governmental action to replace the US dollar with a constructed alternative, mostly obviously the existing special drawing right. While this would technically be possible, at least for official international transactions, the paper suggests the net economic gains would probably not be worth the considerable negotiating effort that would be required to bring about this change without also taking on other significant but deeply controversial changes in the international monetary system.

Interest rate and exchange rate policy coordination under international monetary environment

JIN Zhongxia;Hong Hao

Economic Research Journal,2015,Vol 50,No. 05

【Abstract】 By constructing, estimating, calibrating and simulating of the two-country DSGE model, this paper analyzes the formation mechanism of equilibrium exchange rate and interest rate and the main reasons for disequilibrium. Based on model simulation, the main conclusions include: firstly, in closed or small open economy, with the foreign interest rate being considered as an exogenous variable, the domestic interest rate and the exchange rate achieve equilibrium at the same time. When the exchange rate deviates from its equilibrium level, the domestic interest rate would miss its equilibrium level as well, and vice versa. The pressure of the domestic interest rate increases and currency appreciation appears simultaneously. It suggests that when analyzing equilibrium exchange rate and interest rate, the relation between the exchange rate and interest rate has to be taken into account. Through the domestic interest rate and exchange rate policy coordination, achieve domestic interest rate and exchange rate equilibrium simultaneously. Secondly, in the international monetary environment, whether the exchange rate will achieve its equilibrium level not only associates with the state of the domestic interest rate, but also relates to the state of the foreign interest rate. When the foreign interest rate falls into imbalances, and there is lack of coordination and cooperation mechanisms between the two countries’ monetary policy, the domestic interest rate and exchange rate equilibrium will become an impossible task. Thirdly, for the optimal path adjustment of exchange rate and interest rate imbalances, the model suggests that it should adjust the one which has more disequilibrium than the other.

Estimating exchange rate elasticity of china’s manufacturing export price: from the perspective of vertical specialization

WANG Jianxin;GAO Yunsheng;CHANG Ying

China Industrial Economics,2015,No. 12

【Abstract】 What effects can adjusting the exchange rate (ER) have on China’s foreign trade? Existing literature suggests that the ER elasticity of China’s manufacturing export pricesis very small, and thus adjusting the ER has little impact on China’s foreign trade. But the ER adjustment policy, to some extent, can indeed affect the competitiveness of exporting products. Theoretical studies contradict the reality, and why? From the perspective of China’s provinces’ vertical specialization, an explanation is given to this question: vertical specialization ratio of China’s provinces exerts greater positive effect on the ER elasticity of China’s manufacturing export prices. With the rise of vertical specialization ratio, the coefficient of ER elasticity of each province’s manufacturing export prices will increase. Compared with the existing literature on China without considering the impact of vertical specialization ratio, this study considers this factor and finds that the coefficient of ER elasticity of China’s each province’s export prices is much larger than the estimated results in the literature. The conclusions of the robust tests on samples of differentiated products, samples of different modes of transport and the samples that use vertical specialization ratios of 11 manufacturing products exporting from China to EU15 are stable.

Exchange rate, product quality and export price

WANG Yaqi;DAI Mi;XU Jianwei

The Journal of World Economy,2015,Vol 38,No. 05

【Abstract】 Based on China customs’ minutely sorted export transaction data at the firm-product level, this paper investigated the influence of RMB exchange rate fluctuations on the export prices of China’s products from 2000 to 2006. The research found that the export prices of Chinese products were barely influenced by exchange rate shocks, which means that exchange rate’s export pass-through effect is nearly perfect, that is, China’s exporters basically follow the producer currency pricing (PCP) principle in product pricing. In the meantime, products exported by China’s exporters to high-income nations have a higher exchange rate elasticity of price than those exported to middle and low-income nations. Further research indicates that product quality is an important explanation for the above-mentioned phenomenon. The exchange rate elasticity of export price will increase with the rise of product quality: for each one standard deviation increase in product quality, the exchange rate elasticity of export price will increase by 5.85 percentage points. Therefore, low quality products are quite apt to show a relatively high exchange rate pass-through effect. We found that, comparing with factors such as productivity and intermediate good import, the factor of quality has more explanatory power. The robustness test of this paper proves the reliability of the results.

Financial structure and fixed exchange rate regime: hypothesis and evidence from emerging market economies

ZHANG Jing;LIU Xiaohui

The Journal of World Economy,2015,Vol 38,No. 10

【Abstract】 With emerging market economies as the object of research, this paper examines the effects of financial structure on the choice of exchange rate regime. It is found that the more similar is one emerging market economy’s financial structure to the bank-based one, the more likely it is to adopt the fixed exchange rate regime; conversely, the more similar is one emerging market economy’s financial structure to the market-based one, the more likely it is to adopt more flexible exchange rate regime. Using a sample of 31 emerging market economies (1990–2010), this paper uses discrete choice models, including Probit, Logit, etc. , to perform test and verify theoretical hypothesis of this paper. The robustness tests, which take into account different measurements of financial structure, endogeneity, different divisions of fixed exchange rate regime, estimation of panel data of random effects and fixed effects parameters and different classification of exchange rate regime, also show that conclusions of this paper hold up.

Political logic of U.S. pressure on RMB exchange rate

LI Junjiu;Jiang Mozhu

Northeast Asia Forum,2014,Vol 23,No. 06

【Abstract】 Since the 21st century, exchange rate protectionism has become the new contents and forms of U.S. protectionism against China. This seems to be caused by the American accusations that renminbi (RMB) exchange rate was undervalued and manipulated. However, these allegations are unreasonable, without any statistic support. This paper argues that interest group politics is an important micro-mechanism for the United States to put pressure on the RMB exchange rate; international monetary power, on the other hand, is an important macro-mechanism. China should take the following strategies to deal with the United States’ pressure: differentiating the protective interest groups in the United States and seeking support from the anti-protection interest groups in the United States; increasing autonomy in U.S.-China production, finance, trade, and knowledge structures; closely consulting, coordinating and cooperating with the United States government.

Fluctuations of CNY exchange rate and difficulty in monetary policy regulation

ZHOU Jian;ZHAO Lin

Journal of Finance and Economics,2016,Vol 42,No. 02

【Abstract】 This article studies characteristics of CNY exchange rate fluctuations in the context of Chinese monetary policy implementation by using dynamic stochastic general equilibrium model (DSGE). It constructs a theoretical model of CNY exchange rates fluctuations, China’s monetary policy and their effects on macroeconomic system, and conducts a policy simulation based on calibrating model parameters. Results of research indicate that a greater volatility of CNY exchange rates weakens the effectiveness of monetary policy regulation to a certain extent, but its impact varies on different variables. A greater volatility of CNY exchange rates significantly interferes with the control of monetary policy on macroeconomic demand; when the fluctuation of CNY appreciation is great, the effect of monetary policy on demand variables weakens, but the response trends of relevant demand variables remain unchanged in different times. Greater volatility of CNY exchange rate alleviates the negative impact of interest rate increase on the export, and is conducive to the relief of negative shocks of monetary policy to export, but results in further deterioration in terms of trade (the ratio of export price to import price).

RMB exchange rate and Chinese export enterprise markups: an analysis based on the DID method

XU Jiayun;TIAN Shuo

Journal of International Trade,2016,No. 02

【Abstract】 Based on firm-level micro data from 2000 to 2007, this paper comprehensively and systematically investigates the effects of the RMB real effective exchange rates on Chinese export enterprise markups with the Difference-in-Difference method. The results show that, after the RMB exchange rate system reform in 2005, export enterprise markups have significantly decreased compared with other companies. And the greater the companies’ dependence on exports, the greater the declines in their markups. In addition, from the point of view of markup distribution, RMB appreciation reduces the markup dispersion rate of export firms, which helps optimize the allocation of resources. To a certain degree, this paper provides empirical evidence from China for pricing strategies of export businesses in an environment of exchange rate shocks.

Should China further widen the renminbi floating band as it reforms the renminbi exchange rate regime?

CHEN Sichong

International Economic Review,2015,No. 04

【Abstract】 Further widening renminbi daily trading band will not help to enhance the flexibility of renminbi’s exchange rate. Therefore, further expansion of the floating band alone will not necessarily provide more room for macroeconomic policy adjustments. Admittedly, expanding the floating band would potentially raise the risk of carry trade on renminbi-denominated assets, thus helping reduce the pressure of the risk of cross-border capital flows. However, since renminbi is still subject to the regulation of the daily central parity rate, in the longer term, widening the floating band would not help significantly raise the fluctuation of renminbi exchange rate to thwart carry trade; instead, it could potentially lead to more arbitrage opportunities. Therefore, there is no urgent need for further expanding the renminbi floating band. The key to the reform of renminbi exchange rate regime right now lies in the establishment of a more transparent and market-oriented mechanism for setting renminbi central parity rate.

Impacts of bi-directional fluctuations of CNY exchange rate on China and the world’s economies: based on single country and multi-country dynamic CGE models

WEI Weixian;MA Xili

Journal of Finance and Economics,2017,Vol 43,No. 01

【Abstract】 With the acceleration of CNY internationalization, the international effect of CNY exchange rate fluctuations is further strengthened. This paper builds the single country and multi-country dynamic CGE models respectively, and simulates two scenarios of continued depreciation and appreciation after depreciation of CNY from 2016 to 2030 based on the latest Global Trade Analysis Project (GTAP) database and Chinese input-output table in 2012. Then it analyzes the impacts of CNY exchange rate fluctuations on China and the world’s major economies from perspectives of price level, international trade, economic aggregate and industrial outputs. It comes to the results as follows. Firstly, as for price index, CNY depreciation will bring some inflationary pressure to China. Secondly, as for trade, CNY depreciation will only extend China’s net export in the short term, and will depress China’s net export in the long term. Thirdly, as for economic aggregate, CNY depreciation will only stimulate China’s whole economy in the first few years, and will lead to a deceleration of China’s economic growth in the long term. Fourthly, as for industrial structure, in the depreciation scenario, the output of China’s agriculture and industry will ultimately decrease after expansion for several years; by contrast, the output of service sector will keep decreasing. In a word, none of these two scenarios is conducive to China’s economic development in the long term. In contrast, the world’s major economies like ASEAN, Japan, and the United States will benefit from CNY depreciation in the long term. Therefore, Chinese government should formulate reasonable policies to strengthen expectation management, implement differentiated foreign trade policies, improve multilateral cooperation and respond to the risks resulting from international exchange rate fluctuations actively.

Study of the dispute over RMB exchange rate between China and the US from the perspective of the duality of exchange r ate: is China a currency manipulator?

ZHANG Xin;SUN Gang

Finance & Trade Economics,2015,No. 08

【Abstract】 The RMB exchange rate issue has been one of the most controversial topics between China and the US. Proceeding from the duality of exchange rates and base on the dual exchange rate determination theory, the authors conduct an empirical analysis on the equilibrium level of and the Chinese government’s interventions in the RMB exchange rate by using the two-tier stochastic frontier model. Results show that government interventions are not the main factor in leading to the deviation of RMB exchange rate from the equilibrium level; under the government intervention, the real RMB exchange rate are not underestimated to a certain extent, but on the contrary are overestimated, which is especially obvious during the international financial crisis. Therefore, although the Chinese government intervened in the RMB exchange rate to a certain degree, China cannot be designated as a currency manipulator.

Intrinsic instability of intermediate exchange rate regimes: a new explanation of the “bi-polar view”

LU Jiye

The Journal of World Economy,2015,Vol 38,No. 04

【Abstract】 This paper constructs a game model incorporating intermediate exchange rate regime in the time-inconsistent framework and provides new theoretical explanation for the “special bipolarization of exchange rate regimes”phenomenon. The main conclusions include: intermediate exchange rate regimes do not necessarily lead to crises and can last for a long time on certain conditions and remain at a high-level economic performance; intermediate exchange rate regimes have intrinsic instability, the internal origin of which lies in the objective differences between the policymakers and the public, and the external cause is the relatively strong shock the economy suffers; during the maturing process of an economy, the nature and intensity of objective difference and the economic shocks keep changing and for this reason the intrinsic instability of intermediate exchange rate regimes is entrenched, leading to the “special bipolarization of exchange rate regimes” phenomenon; the evolvement of the exchange rate regimes does not necessarily follow the only path from fixed exchange rate regime to intermediate exchange rate regimes and to floating exchange rate regime. Lastly, this paper uses the panel VAR model to carry out empirical tests on the theoretical conclusions with data of 160 countries in the period of 1970–2008.

?Pricing to market and incomplete exchange rate pass-through: a commentary of the development history and the research progresses

CAO Wei

The Journal of World Economy,2016,Vol 39,No. 09

【Abstract】 In recent years, the exchange rate pass-through theory has made a series of new research progresses, especially from the two perspectives of enterprise's own operational conditions and product attributes to study the “PTM” behaviors. In view of this, this paper first sums up the microcosmic reasons and macroscopic explanations of incomplete exchange rate pass-through; second, using the “PTM” theory as the research main line, the heterogeneity of “PTM” is analyzed from two aspects: operational performance and product quality; third, based on the asymmetric perspective, we explore the enterprise's “PMT” behaviors, and further expand the exchange rate pass-through theory; finally, this paper puts forward the direction of deepening the study of exchange rate pass-through theory in the future, and obtains the inspiration of how to further explore the issue of RMB exchange rate pass-through.

Exchange rate movements and Chinese firm-level export: with discussion of heterogeneous behavior of firms

TIAN Shuo;ZHANG Bowei;SHEN Defang

Journal of International Trade,2016,No. 07

【Abstract】 Based on theoretical analysis, this paper uses Chinese Customs Import and Export Data matching with China‘s Industrial Enterprises Data during 2000–2009 to analyze how firm-level real effective exchange rate movements affect Chinese firm-level export. Overall sample results show both exchange rate appreciation and exchange rate volatilities have significant negative influences on firm export. This paper also divides the sample according to five different standards to catch heterogeneous reaction, and subsample regression results indeed show that different types of firms react differently in face of exchange rate movements.

Capital flow and exchange rate volatility in an unsymmetrical two-country model

FAN Yanhui

Finance & Trade Economics,2015,No. 02

【Abstract】 This paper examines how the assets adjustment behaviors of investors in the developed country influence nominal exchange rate volatility in less developed country. It is found that under the hypothesis of flexible exchange rates, open capital account, and investors’ lagging assets adjustment, the less developed country would see its currency appreciate under the shock of output volatility of developed country. If the output volatility shock of developed country leads to an increase of output volatility in less developed country, then whether the currency of less developed country appreciates or not depends on whether the increase of output volatility in less developed country is lower than that of developed country. Furthermore, the more investors in developed country care about wealth and social status, the more it would aggravate the exchange rate volatility of less developed country.

??Federal Reserve interest rate rising, CNY exchange rate and price fluctuation

FU Guangmin

Journal of International Trade,2017,No. 03

【Abstract】 As China has gradually enhanced its interactions with other countries, Chinese economy is more prone to foreign monetary policies. By building up two-country DSGE model, this article uses parameter calibration method to select model parameters and utilizes economic variable fluctuation characteristics and impulse response function to analyze how US interest rate rising affects CNY exchange rate and relative prices. Research results show that increasing US interest rate will lead to decrease of Chinese inflation rate and stock price. CNY exchange rate will depreciate, which does not necessarily increase export. With the impact of US interest rate rising, the relative volatility of Chinese stock price is the greatest followed by CNY exchange rate and inflation rate. The relative volatility of interest rate is the smallest. In the end, this article proposes some suggestions such as improving macro-control policies and enhancing macro-prudential financial management system.

Exchange rate shock, depreciation expectation and opening bond market

LYU Jianglin ;PENG Yehui

Financial Economics Research,2016,Vol 31,No. 05

【Abstract】 It is considered that opening bond market is helpful to relieve the negative impact of exchange rate volatility in the process of RMB internationalization. Based on the DSGE model with financial accelerator, this paper introduces two economic entities, including foreign bonds investors and domestic enterprises who issue overseas bonds. Based on the analysis on the relationship among exchange rate shock, depreciation expectation and opening bond market, we find that when the currency is depreciating slowly, opening bond market can stabilize the operation of foreign exchange reserves and even the whole economy, although the losses of social welfare increase slightly. On the contrary, when the international markets have strong depreciation expectations, opening bond market will not only harm the stability of foreign exchange reserves, but also dramatically enlarge the losses of social welfare.

China’s exchange rate policy in an open economy: ① an analysis based on Bayesian DSGE model

TANG Lin;WANG Yunqing;HU Haiou

The Journal of Quantitative & Technical Economics,2016,Vol 33,No. 02

【Abstract】 Based on a small open economy New Keynesian DSGE model and the Taylor rules with the exchange rate preference, the paper studies the economic environment and its reactions to shocks before and after the exchange rate reform. The results show that the economic environment is more open after the reform; monetary policy achieves greater autonomy under flexible exchange rate regime; flexible exchange rate can act as shock absorbers; the openness of economic environment is closely related to the effectiveness of monetary policy; and expand RMB exchange rate fluctuations will help to improve trade conditions.

Dynamic dependence between international oil, natural gas and currency exchange markets based on a new time-varying optimal copula model

JI Qiang;LIU Bingyue;FAN Ying

Chinese Journal of Management Science,2016,Vol 24,No. 10

【Abstract】 This paper introduces a new time-varying optimal copula model to precisely identify the optimal dependence structure of bivariate time series at any time point. In this model, half-rotated copulas, namely, CR1G (u, v; θ) = v − COG(1 − u, v; θ) and CR2G (u, v; θ) = u − COG (u, 1 − v; θ), are constructed to capture asymmetric negative dependence, especially for extreme dependencies: lower-upper tail τLU(α) = Pr(X < Fx−1(α) | Y > FY−1(1 − α)) and upper-lower tail dependence τUL(α) = pr(X > FX−1(1 − α) | Y < FY−1(α) ) for a small α, such as 0.05. Meanwhile, a distribution-free test for independence is introduced to verify the dependence and reduce computation time. Finally, the time-varying optimal copula (TVOC) model is employed to analyze the dynamic dependence between energy, including crude oil and natural gas, and currency exchange markets. It finds that for Brent–USDX, the dependence is significantly negative, so the proportion of half-rotated Gumbel copulas is larger than that of the original or rotated Gumbels; the lower-upper or upper-lower tail dependence is significantly larger than the upper-upper or lower-lower tail dependence, especially during crisis periods. The results for GAS-USDX are similar but not very significant, but the dependence between Brent and GAS is positive and the upper-upper or lower-lower tail dependence is larger than the lower-upper or upper-lower tail dependence. Meanwhile, types of dependence between markets vary over time, and crises are usually the major cause of sudden changes in dependence structure. Results also show that the TVOC model captures the dynamic changes in the direction and intensity of the dependence as well as the dynamic characteristics of dependence structure type. In particular, the TVOC model can be employed to predict copula dependence structures in a new way, providing an analytical tool for market investors and risk managers to adjust their portfolio strategies, hedge their investment risk, and guard against risk spillover and even financial contagion.

Financial constraints, hedging and exchange rate elasticity of export

ZHAO Zhongkuang;LI Shuqi;YANG Rudai

Management World,2016,No. 06

【Abstract】 Since 2005 RMB has experienced great appreciation, while the export has also been increased rapidly. This phenomenon is called the “exchange rate disconnect puzzle” at the macro level. On the basis of a theoretical model, this paper studies the exchange rate elasticity of export from the angles of financial constraints and hedging at the firm level for the first time with the method of structural equation. The results show that financial constraints cause the median of the exchange rate elasticity of export to rise by 1.325 before the exchange rate reform and by 1.626 after the reform, while price hedging, financial hedging and operational hedging respectively cause the median to drop by 0.007, 0.331 and 0.695 before the reform and by 0.015, 0.159 and 0.929 after the reform. These estimates are significantly lower than the counterparts in previous studies. This paper further finds that the top 95% companies in terms of export quantity have relatively low exchange rate elasticity of export, with a median of 0.15 before the exchange rate reform and 0.24 after the reform, and the influence of exchange rate on export volume is clearly heterogeneous among firms. This paper explains the “exchange rate disconnect puzzle” at the macro level from the micro perspectives of financial constraints, hedging and composition effects.

RMB equilibrium exchange rate determination and policy coordination: a study based on the TVP-VAR model

DENG Liqiao;WANG Aijian

Financial Economics Research,2015,Vol 30,No. 06

【Abstract】 This study presents a Sino-US two-stage model for determining the equilibrium RMB exchange rates obtained under the combined action of trade demand and the willingness of financial institutions to bear risks. The model results show that RMB exchange rates are positively correlated with financial institutions’ willingness to bear risks, China’s import demand from the United States, and return on investment in the United States, but are negatively correlated with the United States’ import demand from China and China’s return on investment. In the verification of the TVP-VAR model, the empirical results are consistent with the conclusions derived from the theoretical model, except for a certain degree of distortion in RMB exchange rates, which arises from China’s high level of inflation before the global financial crisis and the reflow of capital to the United States during the crisis.

Geo-economic analysis on the impacts of change in CNY exchange rate on the economic growth and industrial structures of countries

HU Min;WANG Zheng;GU Gaoxiang

Technology Economics,2016,Vol 35,No. 11

【Abstract】 ‍This paper divided the whole world into ten countries or regions. Based on a general equilibrium model, it simulated and analyzed the GDP growth and changes of industrial structures of main countries or regions at different exchange rates. The results shows that China will surpass the US in GDP in 2035; CNY appreciation will slow down China’s but speed up other countries’GDP growth; CNY depreciation helps China but hurts other countries in GDP growth; CNY appreciation will be followed by the decrease in the proportions of China’s agriculture, light industry and construction industry and the increase in the proportions of its food processing industry, energy industry, chemical industry and heavy industry. Since in geo-economic terms, India and Russia compete with China while China and European and American countries keep cooperation with China, India and Russia generally register opposite changes of industrial structures to those of China, while the trend of changes of industrial structures in European and American countries is similar to that of China.‍

Impact of RMB exchange rate fluctuations on China’s processing trade: the amplification effect of rising ratio of domestic value

SU Lifeng;PENG Fei

Finance & Trade Economics,2016,Vol 37,No. 07

【Abstract】 Most studies suggest that the domestic value added rate of China’s processing trade is relatively low, so the effect of RMB appreciation on the processing-trade imports and exports with “both ends out” is not obvious. Through calculation, the authors find that the ratio of domestic value of China’s processing trade has been on the rise in the past 20 years, and that changes in ratio of domestic value must be taken into consideration in order to correctly assess the impact directions and degrees of RMB exchange rate on processing-trade imports and exports. In this paper, the empirical tests prove that RMB appreciation can drastically reduce processing-trade imports and exports with the long-term elasticity being −1.5 and −1.0 for them respectively. Further, because the impacts of RMB appreciation on foreign value and domestic value of export commodities in processing trade are opposite, different ratios of domestic value will change exchange rate elasticity values of processing-trade imports and exports. With the rise in ratio of domestic value in China, such exchange rate elasticity values during the sample period experienced changes from positive to negative and then increasingly growth; the export elasticity and import elasticity in 1995 were 0.4 and 0.5, respectively, and −2.0 and −1.4 in 2014, respectively.

Dynamic evolution of CNY pricing power: a c omparative analysis based on the fluctuation margin of the exchange rate

YAN Jiajia;LI Shuzhen

Financial Economics Research,2017,Vol 32,No. 04

【Abstract】 Since China’s exchange rate reform on August 1, 2015, the exchange rate fluctuation range has been expanded, which led to many long-short games in the CNY offshore market in China's Hong Kong and highlighted the importance of the CNY pricing power. To analyze the dynamic evolution of the CNY pricing power, the paper used the GARCH-BEKK model to empirically examine the relationship between onshore and offshore CNY exchange rates according to different exchange rate fluctuation ranges. It is found that the expansion of the exchange rate fluctuation range strengthens the dominance of the offshore exchange rate, and in the competition for the CNY pricing power, the utilization of foreign reserves to intervene in the exchange rate market and the tightening of liquidity in the offshore CNY market taken by China’s Central Bank are only effective in the short term. In the long run, China’s Central Bank should establish highly effective, flexible and elastic CNY exchange rate pricing mechanism.

P?redictability of different fundamental exchange rate model on CNY exchange rate

DENG Guichuan;LI Yanli

The Journal of Quantitative & Technical Economics,2016,Vol 33,No. 09

【Abstract】 This paper selected five fundamental exchange rate models and fitted and predicted CNY exchange rate with the data in-sample and out-of-sample after 2005. It also compared the predictabilities of different models to CNY exchange rate through loss functions and SPA tests. The results showed that the random walk model had better short-term predictability of CNY exchange rate, while fundament exchange rate models had better medium and long-term predictability; in general, fundamental exchange rate models showed better predictability than the random walk model, with no mystery of missing exchange rate exchange rate; and there were different models of the most optimal predictability as to different currencies.

Does RMB exchange rate regime reform affect the effectiveness of China’s monetary policy?

WU Xiaofang;XIE Jianguo;GE Qiuying

Economic Review,2017,No. 01

【Abstract】 By building a vector autoregression model (VAR model), this paper studies how the reform of RMB exchange rate regime, which happened in the year of 2005, affects the effectiveness of monetary policy on the macro-economy. It is shown that the effectiveness of China’s monetary policy has obviously improved after the reform of RMB exchange rate regime. We find that, (1) when the economy is overheating, the rising of interest rate not only brings down the inflation rate, but also makes greater contribution to the decrease of it. (2) Interest rate can effectively control and manage the RMB real effective exchange rate, because interest rate can make it change beneficially to the achievement of monetary policy objectives. (3) Interest rate can adjust output to some extent, but the adjustment space is relatively small. It is also shown that the reform of RMB exchange rate regime does not increase macroeconomic fluctuation.

Can the changes in exchange rates have spillover effects on the real estate price fluctuations: evidence from China’s real estate market during 1997–2015

HAN Xintao;LIU Xing

Chinese Journal of Management Science,2017,Vol 25,No. 04

【Abstract】 Based on the historical trend of RMB exchange rate changes and real estate price fluctuations in China, this paper analyzes the comprehensive impact of exchange rate changes on real estate price and the mechanism of dynamic impact between each other in theory. Based on monthly data from October 2007 to December 2011 and VAR-FBEKK model, the effects of the RMB exchange rate changes on the real estate price fluctuations form direct and indirect perspectives are studied by introducing the money supply as an intermediary variable, and the estimating results of models are made a robustness test and a comparative analysis through simulating interrupt data of national new real estate price index from January 2011 to June 2015 by the principal component analysis. The results show that, the changes in RMB exchange rates do not play a directly significant role in the China’s real estate price fluctuations, but the indirect relation of exchange rates’ changes transferring to the real estate price fluctuations may exist through money supply as an intermediary variable; the changes in RMB exchange rates have little direct spillover effects on the real estate price’s growth rate, but both the co-volatility of exchange rates’ changes and changes in the money supply and the volatility of changes in the money supply have significant impacts on the estate price’s growth rate, namely, the changes in RMB exchange rates have an indirect spillover effect on the real estate price’s growth rate. Therefore, People’s Bank of China should further coordinate the monetary policy and the exchange rate policy, continue to steadily implement the reform of the exchange rate regime, and strengthen “attention” to the real estate price fluctuations. The above findings enrich the theoretical research of the relationship between asset price and exchange rate policy, and also provide new evidence for how exchange rate changes affect real estate price fluctuations form the point of view of direct and indirect effects.

CNY exchange rate and escalation of GVC embeddedness: an empirical analysis of Chinese enterprises

REN Yonglei;LI Ronglin;GAO Yue

Journal of International Trade,2017,No. 04

【Abstract】 Based on the firm–level micro data and customs data from 2000 to 2007, this paper conducts empirical analysis to study the relationship between fluctuation of CNY exchange rate and the improvement of global value chain embedment. The results show that: Firstly, CNY appreciation has a positive impact on global value chain embeddedness, but the influence has been weakened after considering the intermediate business trade. Secondly, the impacts of CNY appreciation in improving global value chain embeddedness are significantly different among firms with different characteristics, including global value chain embeddedness, different ownerships of enterprises, different productivity levels, and different financing constraints. Finally, product quality improvement has a positive impact on the improvement of global value chain embeddedness, and CNY appreciation has a greater positive impact on enterprises producing high–quality products.

Renminbi exchange rate and urban-rural income gap

LI Xiaolin;SI Dengkui;JIANG Chun

Journal of Finance and Economics,2017,Vol 43,No. 11

【Abstract】 The reform of renminbi exchange rate has been advanced constantly and the flexibility of renminbi exchange rate also has been increasingly enhanced since July 2015. In August 2015, China once again carried out the reform aiming at improving the central parity rate mechanism of renminbi exchange rate against US dollar. Since then, the two-way volatility of renminbi exchange rate has been normalized. As the price of home currency in the international market, the exchange rate can produce price and wealth effects along with its fluctuations, thereby resulting in distributional effect. On the one hand, due to differentiated trade goods produced and consumed between rural and urban residents, the changes in renminbi exchange rate play a role in trade structure, industrial structure, employment structure and economic growth, and further in urban-rural income distribution pattern, by affecting import and export trade. On the other hand, changes in renminbi exchange rate can affect the type and amount of currency possessed by urban-rural residents, and then have an important effect on cross-border capital investment. Especially with the internationalization of the renminbi and the two-way opening-up of the financial market, the marketization of renminbi exchange rate will be further improved, and thus it is no doubt that the effect of changes in renminbi exchange rate on income distribution will be strengthened. As an important aspect of unequal income distribution, urban-rural income gap has always been a major concern of China. Against the urban-rural binary economic structure background, this paper theoretically depicts the micro mechanism concerning the effect of changes in renminbi exchange rate on urban-rural income gap. Then, it applies the panel threshold regression model proposed by Hansen (1999) with provincial data during the period of 1994 to 2016 and endogenous grouping to empirically investigate the asymmetric and regional heterogeneous features of the effect of renminbi exchange rate changes on urban-rural income gap in 28 Chinese provinces. The results show that the effect of changes in real effective renminbi exchange rate on urban-rural income gap is not fixed, but depends on changes in regional per capita income and the degree of trade openness, thereby being featured by asymmetry and regional heterogeneity. Specifically speaking, the appreciation (depreciation) of real effective renminbi exchange rate can reduce (expand) the urban-rural income gap in provinces with low income level &low trade openness as well as middle income level and high trade openness, but will expand (reduce) the urban-rural income gap in provinces with high income level and high trade openness. However, the changes in the real effective renminbi exchange rate do not have an obvious effect on the urban-rural income gap in provinces with middle and high income levels and low trade openness. Based on the conclusions of this paper, the following implications can be obtained. Firstly, when formulating policies to narrow the urban-rural income gap, Chinese governments should look upon the distributional effect of exchange rate changes and take different measures in different regions, to respond to the impact of exchange rate changes on urban-rural income gap. Secondly, narrowing the relative labor productivity gap between urban and rural areas is one of the important directions to alleviate income gap. Thirdly, in the process of expanding financial openness and trade openness, local governments should pay attention to the improvement of rural financial development and trade environment, and change the situation that rural areas cannot or will not enjoy the dividends of financial and trade openness to a greater extent, thereby providing conditions for narrowing the urban-rural income gap. The contributions of this paper are as follows: firstly, the existing literature investigates urban-rural income gap mainly from the perspectives of macroeconomic development, policy differences and historical legacy, while this paper focuses on exchange rate changes, which would enrich the existing research; secondly, this paper uses the panel threshold model and further explores the regional heterogeneous feature of the effect of changes in renminbi exchange rate on urban-rural income gap through endogenous grouping according to the threshold value, which is helpful to examine the income distribution effect resulting from real exchange rate changes more comprehensively and objectively; thirdly, the theoretical and empirical analysis of this paper help better understand the intrinsic mechanism and external manifestation of the effect of renminbi exchange rate changes on urban-rural income gap, and then provides some implications for governments to make relevant policies to reduce urban-rural income gap.

Pass-through effect of CNY exchange rate changes: an empirical test based on TVP-SV-VAR model

PAN Changchun

Journal of International Trade,2017,No. 04

【Abstract】 This paper investigates the pass–through effects of CNY exchange rate changes based on a time–varying parameter vector auto–regression model with stochastic volatility. The results show that the pass–through effects of CNY exchange rate on import prices, producer prices and consumer prices increased firstly and then declined, showing an obvious time–varying feature. The price pass–through of CNY exchange rate change is imperfect and has a certain time lag. The pass–through effect decreased along the commodity flow chain and reached extremely low impacts on consumer prices. Exchange rate system reform, economic cycle fluctuations, and inflation changes all lead to significant changes on the pass–through effects of CNY exchange rate.

An analysis of the exchange rate of Kazakhstani tenge

SUN Shan

Russian Central Asian & East European Market,2017,No. 06

【Abstract】 Located in Central Asia, Kazakhstan is the first station for the westward extension of the construction of the Belt and Road Initiative. The stability of the value of KZT has a direct bearing on the smooth development of trade between China and Kazakhstan and the smooth construction of the Belt and Road. Since Kazakhstan announced the implementation of the floating exchange rate system in August 2015, the KZT depreciates sharply. This paper conduct a comprehensive analysis of the cause of the fluctuation of Kazakhstani tenge from macroeconomic indexes of the country, such as economic development, balance of payment, and inflation rate, based on the 1994–2016 exchange rate data. The effect of central bank’s regulation on the fluctuation of tenge is also included in this paper. This paper holds that tenge will remain stable in the foreseeable future.

RMB exchange rate, pricing to market and efficiency of resource allocation

LIU Qiren;HUANG Jianzhong

Economic Research Journal,2016,Vol 51,No. 12

【Abstract】 This paper investigates how domestic currency appreciation affects markup dispersion, a potential index of misallocation of resources. We find that firm’s markup elasticity to exchange rate are increasing with its export market share, so firms with higher market share reduce more of their markup in face of appreciation and thereafter reduce markup dispersion. We find robust evidence for our theoretical predictions using Chinese firm-level data. Our empirical identifications treat 2005 Chinese exchange rate reform as a qusi-natural experiment and find that RMB appreciation can significantly reduce markup dispersion within narrow defined industry. Appreciation forces higher markup firms to reduce more of their markup, therefore markup dispersion within that industry is directly reduced. In addition, it forces low productivity firms in high monopoly industry to abandon X-inefficiencies, which indirectly reduce misallocation.

The sequence of interest rate marketization, exchange rate liberalization and capital account openness

CHEN Zhongfei;WANG Xi;WANG Wei

The Journal of World Economy,2017,Vol 40,No. 06

【Abstract】 Based on the “financial reform” and exchange rate system database established by Abiad and Anderson et al., this paper applies Granger causality to the discrete data and uses orderly probit and logit models to analyze the general rules of mutual promotion for three financial reforms, interest rate marketization, exchange rate liberalization and capital account openness in 66 countries (regions) all over the world during 1970-2005. We further study the impact of three reforms on the outbreak of currency crisis based on the crisis database of Reinhart and Rogoff. The study finds that the exchange rate liberalization and interest rate marketization promote each other as both cause and effect, which accelerates the process of capital account openness; the exchange rate liberalization is not only conducive to the interest rate marketization and capital account openness reform, but also helps to restrain the outbreak of currency crisis. Thus the sequence of the three reforms should be exchange rate liberalization, interest rate marketization and capital account openness.

RMB exchange rate, processing trade and markups of Chinese firms

SHENG Dan;LIU Zhuqing

The Journal of World Economy,2017,Vol 40,No. 01

【Abstract】 Using the firm-level micro data from 2000 to 2006, this paper analyzes how the fluctuations of RMB exchange rate affect Chinese companies’ markups. The results show that the appreciation of RMB significantly reduces the markups of Chinese manufacturing firms, and that the preceding effect is more pronounced for processing trade firms. Moreover, this effect is heterogeneous for firms with different characteristics, including scales, technologies, profits, ownerships, etc. Furthermore, we find that the appreciation of RMB lowers both the product prices and the marginal costs of exporters’ at the same time, and that it has greater impact on the prices of processing trade firms. In summary, our paper shows that the competitive advantages of prices for Chinese firms are gradually weakening. As a consequence, technological innovation and industrial restructuring become the best way for Chinese firms to deal with trade disputes and to upgrade China’s export structure.

The evolution of the Russian exchange rate regime: a perspective from currency mismatch

ZHENG Weichen

Russian,East European & Central Asian Studies,2017,No. 03

【Abstract】 Since its independence in 1995, Russian Central Bank has implemented three kinds of exchange rate regime, including the “foreign exchange corridor,” managed floating exchange rate regime and free-floating exchange rate regime. As the exchange rate regime evolved, three exchange rate crises erupted. Among them, the first two exchange rate crises evolved into the financial crises, which resulted from domestic currency mismatch. After the financial crisis in 2008, Russia gradually turned to a free-floating exchange rate regime, increase in exchange rate flexibility mitigated the problem of currency mismatch, and this is also the reason that exchange rate crisis in 2014 did not evolve into a financial crisis.

Influence of firm-level effective exchange rate on enterprise profit

WU Guoding

The Journal of World Economy,2017,Vol 40,No. 05

【Abstract】 Based on Chinese Customs Database and Chinese Industrial Enterprise Database, this paper estimates firm-level net, export, import and aggregated effective exchange rates, and examines the overall and heterogeneous impact of the changes of these rates on enterprise profits via different influence channels. We find that, in general, the appreciation of firm-level net effective exchange rate has a negative impact on profits. From the perspective of influence channels, the appreciation of export effective exchange rate has a negative effect on profits, while that of import effective exchange rate has a positive effect. The effect is also heterogeneous for firms with various trade types, profitability and number of export products.

RMB internationalization and the optimal monetary policy: from the perspective of exchange rate pass-through

WANG Sheng;LIAO Xi

Economic Review,2017,No. 06

【Abstract】 From the perspective of RMB internationalization, this paper connects the internal mechanism of the interactions among exchange rate pass-through, interest rate rule and production shocks, and expands the standard monetary policy model. In the context of an open economy, this paper focuses on analyzing the influence of increasing exchange rate pass-through caused by RMB internationalization on monetary policy transmission mechanism and social welfare. The results of this research show that as RMB undergoes greater internationalization, the increasing exchange rate pass-through will directly influence the optimal monetary policies of China and the U.S. and increase the welfare level of both countries at the same time. RMB internationalization will intensify the exchange rate fluctuation in Nash equilibrium, while in cooperative equilibrium the exchange rate fluctuation will exhibit a trend of an increase followed by a decrease as the exchange rate pass-through increases.

Exchange rate fluctuations, exchange rate effects of neighboring countries and bilateral trades: based on SVAR model of China and five countries in Southeast Asia

CAO Wei;LIN Shouwu

Journal of International Trade,2017,No. 11

【Abstract】 This paper introduces the neighboring countries exchange rate effects into the theoretical model of the relationship between exchange rate and bilateral trade, constructs a structural vector autoregressive model (SVAR), and analyzes the impacts of bilateral and neighboring exchange rate fluctuations (including level fluctuations and volatilities) on bilateral trades between China and five countries in Southeast Asia. Studies found that bilateral trades between China and the five countries in Southeast Asia are slightly affected by the bilateral and neighboring exchange rate fluctuations, but are greatly influenced by the bilateral and neighboring exchange rate volatilities, and the influences are positive. In addition, different countries’ neighboring country exchange rate volatility effects are significantly different. The influences of the Thailand exchange rate volatilities on bilateral trades between China and Malaysia and the Philippines exchange rate volatilities on bilateral trades between China and Indonesia are both positive, while the influences of Malaysia exchange rate volatilities on bilateral trades between China and the Philippines, Singapore, Thailand are all negative. Meanwhile, further studies found that most industries also have neighboring country exchange rate effects, and the results are similar to the result of the overall level. For the above conclusions, this paper found some factors that could explain the results, including the exchange rate linkage between China and the five countries in Southeast Asia, manufacturer’s competitiveness and the degree of financial market development. At last, we also proposed policy enlightenments under the background of the Belt and Road Initiative.

Carry trade, exchange rate volatility and monetary policy

CHEN Lei;FAN Xiaoyun

The Journal of World Economy,2017,Vol 40,No. 11

【Abstract】 We construct a model to determine exchange rate, which includes the carry trader as a new representative, and combines with the liquidity spirals introduced by Brunnermeier and Pedersen ( 2009). The new model gives a better explanation of exchange rate volatility. We further propose the “Exchange Rate Contagion Channel of Monetary Policy.” It states that Fed’s monetary policy influences carry traders, resulting in exchange rate volatility, so other countries adjust their monetary policies to reduce exchange rate volatility. Based on these, we give two propositions: (1) unlike what the trilemma theory predicts, more floating exchange rate may decrease monetary policy independence; (2) the openness of capital and financial account which is most related to carry trade reduces monetary policy independence more significantly. We have empirically tested these two propositions. Lastly, we propose two policy suggestions: (1) it is necessary to manipulate exchange rate properly; (2) if we have to open capital and financial accounts, we should firstly open the accounts that are not most related to carry trade.

Dynamic noise trading model and empirical analysis on the CNY exchange rate determined by central bank’s intervention

CHEN Langnan;WU Shengjin;WANG Shengquan

Journal of International Trade,2017,No. 10

【Abstract】 This paper develops a dynamic noise trading model with central bank interventions, in which the proportion of fundamental and noise traders varies according to the market conditions, in order to investigate the impacts of interventions on the foreign exchange traders and the movement of RMB exchange rates. This paper also conducts an empirical test on the findings derived from theoretical modelling using a TVP–VAR model. By solving the model, this paper derives the intervention conditions with which RMB exchange rates converge to the fundamental value. The results suggest that RMB exchange rates would converge to the fundamental value if its fluctuations are within a certain range with appropriate interventions from the central bank. The results also show that the central bank interventions can alter the instant equilibrium exchange rate in the short run. But in the long run, the RMB exchange rates will eventually converge to the fundamental value. The findings of theoretical modelling are supported by empirical results.

China-US financial cooperation after the global financial crisis: from the perspective of the US politics of exchange rate

WANG Guannan;XIANG Weixing

Northeast Asia Forum,2018,Vol 27,No. 01

【Abstract】 This paper suggested that the US politics of exchange rate objectively drove the establishment of China-US Strategic and Economic Dialogue, providing a platform for financial cooperation between the two countries. Although the attitude of Trump government towards the issue of CNY exchange rate is still restricted by the US politics of exchange rate, the market-oriented reform of CNY exchange rate still effectively restrained the political pressure on China. More importantly, the collaboration of the two countries on the issue of CNY exchange rate is an important opportune moment for further financial cooperation. Both China and the United States should grasp this great historic opportunity, by setting up currency swap agreement and further opening the financial sector, to consolidate the market basis of bilateral financial cooperation at the micro level. In the long term, the substantial progress of China-US financial cooperation will also be an effective way to suppress the US politics of exchange rate.

Foreign exchange derivatives, exchange rate exposure, and enterprise value: empirical evidence from Chinese listed manufacturing companies

LI Meng;CHEN Fengxian

Financial Economics Research,2017,Vol 32,No. 06

【Abstract】 Using quarterly data of 218 Chinese listed manufacturing enterprises for the period 2006–2016, this study analyzed the relationships among exchange rate exposure, the use of foreign exchange derivatives, and enterprise value. The empirical findings are summarized as follows. First, foreign exchange risks have a significant influence on Chinese listed manufacturing companies, particularly in the case of technology- and resource-intensive companies, whereas labor-intensive companies are the least affected. In addition, an increase in export earnings reduces the foreign exchange risks faced by such companies. Second, the reforms of the exchange rate system in 2015 have reduced the exchange rate exposure of such companies. Third, the full use of foreign exchange derivatives provides a value premium to Chinese listed manufacturing companies. Therefore, it is recommended that these companies develop an attitude of risk prevention, using foreign exchange derivative portfolios to minimize exchange rate risks and boost the enterprise value.

Impact of changes of Russian ruble exchange rates on Russia’s inflation: an empirical analysis based on VAR model

SUN Guofeng ;WANG Yuan

Russian Central Asian & East European Market,2018,No. 02

【Abstract】 Reviewing the path of Russia’s exchange rate reform since the 1990s, this paper explores dynamic relationships between a group of endogenous variables by establishing the VAR model and adopting the Granger causality test, impulse response analysis and variance decomposition. The result of the analysis indicates that the change in Russia’s domestic price level over the lagged period is the decisive factor behind the current price level. This conclusion has some implications for China. China should steadily boost its exchange rate reform, tighten regulation of capital accounts, and expedite industrial restructuring and upgrading.

How do real exchange rate movements affect China’s export transition within manufacturing sectors?

MAO Risheng;GAO Lingyun;ZHENG Jianming

Management World,2017,No. 03

【Abstract】 This study investigates the links between export contraction rate and real exchange rate movements. An analytical framework is constructed to empirically test the impacts of exchange rate movements on export contraction rates. Using firm-level panel data covering all industrial enterprises above designated size, detailed customs data at product level, and industry specific real exchange rate over the period from 1998 to 2009, this paper shows that, first, the real exchange rate movements have significantly impacted on export expansion and export contraction rates, while the export destruction and net export growth rates are not significantly affected by real exchange rate fluctuations overall. Second, the export expansion rate and contraction rate both are asymmetrically affected by real exchange rate movements. The export contraction rate declining is closely associated with the real exchange rate depreciation, while there is no significant impact of real exchange appreciation on export contraction rate overall. Third, the persistent and cyclical component of real exchange rates have different impacts on export expansion and contraction rates, which is an important reason why real exchange rate movements have asymmetric impacts on export expansion and contraction rates. Fourth, the persistent change of real exchange rate can cause significant impact on export contraction rate of those sectors with low profit margins, while the export contraction rates of manufacturing sectors with high profit margins are not significantly affected by persistent movements of real exchange rate.

Effect of CNY exchange rate movements on the quality of export products of Chinese manufacturing enterprises

ZHANG Mingzhi;JI Kejia

China Industrial Economics,2018,No. 01

【Abstract】 This paper investigates the effects of CNY exchange rate movements on manufacturing firm’s export product quality based on the perspective of vertical specialization using Chinese firm-level data from the National Bureau of Statistics of China and Chinese customs data over the period of 2000–2006. The empirical results are as follows. The appreciation of the CNY exchange rate improves the firm-destination quality of export products and the increase of vertical specialization will help to enhance the positive impact of exchange rate movements. By controlling the influence of vertical specialization, it shows that the impact of CNY exchange rate changes on the quality of export products will vary with firm’s total factor productivity, ownership, financing constraints as well as industry factor intensity and industry competition level. The higher the TFP of the firms is, the stronger the positive impact of the exchange rate on the quality of the exported products is. Foreign-owned and weak financing constraint firms or the firms who are in labor-intensive industries or more competitive industries will be affected in the same way. Empirical tests on the impact mechanism are as follows. The influence of exchange rate changes on the quality of differentiated products is quite different and the impact of CNY exchange rate on the firm-destination quality of export products is achieved by encouraging firms to adjust differentiated quality products. Vertical specialization moderates the influence of exchange rate changes through cost effect, quality effect of imported intermediate inputs and category diversity effect of imported intermediate inputs.

The political and economic logic of exchange rate policy made by the Carter Administration ①

PAN Rui;MA Xiaoxiao

The Chinese Journal of American Studies,2017,Vol 31,No. 04

【Abstract】 The Carter period was a representative period when the U.S. utilized exchange rate policy to mobilize internal and external resources to cope with crises in the face of serious international and domestic ones simultaneously. A research of the political and economic logic of the Carter administration’s exchange rate policy-making has its important practical significance. The interaction between the Carter Administration and the market determined the U.S. exchange rate policy-making on the basis of the institutional legacy inherited by Carter and under the dual effects of external shocks and internal interactions. On the international level, the goal of the Carter administration’s exchange rate policy adjustment was to avoid the excess depreciation of the U.S. dollars, prevent the split of American allies and to better maintain the U.S. hegemony under the global offensive of the Soviet Union; on the domestic level, the exchange rate policy was to isolate the impact of great inflation caused by exceedingly loose monetary policy on the depreciation of the U.S. dollars.

Interest rate liberalization, exchange rate reform, and international capital flow

CHEN Chuanglian;YAO Shujie;ZHENG Tingguo;OU Jinghua

Economic Research Journal,2017,Vol 52,No. 04

【Abstract】 As interest rate, exchange rate, and capital account reforms accelerate, the Chinese financial market faces unprecedented challenges. Most studies showed that factors such as capital control, transaction cost, and limited arbitrage render the relationship between the interests and forward exchange rates as nonlinear and time-varying on a non-flat-rate parity curve. This paper built a time-varying theoretical model to identify the relationships between the interest rate, exchange rate, and international capital flow based on the current market situation in China, where the monetary authority implements a managed floating exchange rate system and capital control. Using monthly data for 1997M01—2016M04, we established a vector autoregressive model with time-varying parameters to estimate their relationships. Unlike the traditional constant vector autoregression (VAR) model, framework in this paper can effectively derive the dynamic relationships between the three variables over time. The model can also be used to evaluate the effectiveness of a non-flat-rate parity curve in China. We analyzed the effects of the market-oriented reform of the interest rate, the exchange rate system, and capital account liberalization on the interest and exchange rates and international capital flow. The results showed that if the difference between the onshore and offshore renminbi interest rates exceeds the threshold value, the effect of the interest rate on the exchange rate is positive, as is the effect of an interest rate shock on the international capital flow. However, if the difference between the onshore and offshore renminbi interest rates is below the threshold value, the exchange rate depreciates or remains unchanged, and the positive effect of an interest rate shock on the international capital flow declines substantially. Thus, currency appreciation and interest rate expectation promote international capital inflows if and only if the risk premium is sufficiently large, making the effects of the interest rate and the exchange rate on the international capital flow time-varying conditional on the risk premium. These findings made a useful contribution to the literature. The analysis of time-varying variance decomposition showed that the effect of interest rate changes on the exchange rate and international capital flow is relatively limited. The transmission mechanism from the exchange rate to the interest rate is almost ineffective, although it is relatively effective from the exchange rate to the international capital flow. In sharp contrast, the effect of the international capital flow on the interest rate is limited but highly significant on the exchange rate. The reasons the effects of interest rate changes on the international capital flow and exchange rate are limited are twofold. First, the monetary authority still controls the capital account, which weakens the price transmission effect of interest rate changes on the other two variables. Second, the monetary authority controls the range of exchange rate volatility, which results in the interest rate parity not holding well. Thus, the most urgent strategy of the three major financial market reforms is to improve the transmission mechanism of the interest rate to the exchange rate to further expand the range of renminbi interest rate fluctuations and liberalize capital accounts, which would improve the transmission effectiveness of monetary policy on international capital flow. It is therefore suggested that market-oriented reforms should be implemented in the sequence of interest rate liberalization, exchange rate market reform, and capital account liberalization to prevent China from suffering a systematic financial crisis arising from unexpected capital flight.

Ruble exchange rate and the Russian economic structure: the perspectives of two sectors

LIU Laihui

Russian,East European & Central Asian Studies,2018,No. 02

【Abstract】 For a long time, the economic structure, as an important factor, is influencing the Russian economy, and Russia has not been able to get rid of the restriction of structural problems. The existing papers studied the impact of system transformation and resource dependence on the economic structure, lacking the research of the ruble exchange rate impact on the economic structure. The sharp depreciation of the ruble exchange rate in 2014 has raised concerns about the Russian economy. From the two perspectives of trade and non-trade sectors, the ruble exchange rate significantly affects the economic structure of Russia. The appreciation of the ruble will aggravate the imbalance between the two sectors. On the contrary, the depreciation of the ruble will alleviate it.

Impact of the US dollar on the exchange rate of the Russian ruble

ZHENG Weichen

Russian Central Asian & East European Market,2018,No. 03

【Abstract】 The value of the Russian ruble has been one of the key factors affecting Russia’s economic and financial stability. Different from traditional analysis focusing on Russia’s domestic economy and oil prices, this paper reveals that the US dollar’s value is another key factor affecting the exchange rate of the Russian ruble, as the change in the US dollar’s value may have a significant impact on the value of the Russian ruble via the trans-border flow of money. Therefore, it is advisable for Russia to adhere to its market reform aimed at formulating a sound mechanism for the Russian ruble’s valuation, to enhance surveillance over the trans-border flow of money, and to overcome the fragility of its domestic financial system in response to the impact of the US dollar on the Russian ruble.

Effect of RMB exchange rate on profitability of China’s export firms: evidence from China’s listed firms in 2006–2016

GU Haifeng;YU Jiajun

Journal of International Trade,2018,No. 09

【Abstract】 Using the D-S monopolistic competition model, this paper analyzes the causal effect of RMB exchange rate on the profitability of Chinese export firms. To test the mechanism, the authors conducted an empirical study based on the firm-level panel data of Chinese listed firms in the period of 2006–2016. The finding are as follows: I. Appreciation of RMB has a negative effect on the profitability of Chinese export firms: every 1% appreciation in REER of RMB leads to a significant drop in the gross profit of export firms by 0.372%; II. While the appreciation of RMB erodes the profitability of private export firms, it improves that of Sino-foreign joint ventures, indicating that Sino-foreign joint ventures are more resistant to exchange rate risks in the context of RMB appreciation; III. The profitability of export firms in eastern coastal regions suffers the least from RMB appreciation, while that of export firms in western regions suffers the most from the slight decline in export volume; IV. Compared with service and high-tech industries, general industrial and agricultural export firms suffer more, which implies that RMB appreciation will produce a “disruptive upgrade” effect on the industrial structure of Chinese export sectors. Hopefully, the results of this research would serve as theoretical guidance and decision-making reference for the government to formulate scientific and efficient exchange rate and industrial policies.

How do exchange rate changes affect the technology structure of China’s exports to the US via ordinary trade?

SHEN Guobing;HUANG Shuojun

The Journal of World Economy,2017,Vol 40,No. 11

【Abstract】 By analyzing the data of ordinary trade’s exports from China to the US between 2003 and 2013, we adopt the Tobit model to explore the effect of real exchange rate changes on the technology structure of exports. The results show the following findings. (1) Before 2007, processing trade exaggerated the technology level of China’s manufacturing exports to the US; after 2007, the technology structure of ordinary trade’s exports from China to the US had a significant improvement but was still subject to a “statistical illusion.” (2) The effect of real exchange rates on product shares varied among ordinary trade’s exports with different technology levels. The appreciation of real exchange rates of products enhanced the share of China’s high-tech manufactured exports to the US in ordinary trade, thus promoting the technology structure of ordinary trade’s exports from China to the US at the micro level. (3) At the macro level, the appreciation of the real RMB/USD exchange rate also promoted the technology structure of ordinary trade’s exports from China to the US. The increase of RMB exchange rate volatility after the subprime crisis was harmful to the promotion of the technology structure of China’s exports to the US. Thus, only with disaggregated product data can we reveal the authentic relationship between the real exchange rate of products and the technology structure of exports. Backed by the structural adjustment effect of real exchange rate appreciation of export products, China should strengthen technology innovation to extend the value chains of ordinary trade to promote its economic growth.

Diversification of export products and exchange rate regime choice

ZHANG Jing;LIU Xiaohui

The Journal of World Economy,2018,Vol 41,No. 08

【Abstract】 Drawing on the data set of export product diversification developed by the IMF, this paper makes the first attempt in the empirical literature to test the impact of export diversification, including both extensive and intensive margins, on the choice of exchange rate regimes over a sample of 72 developing countries (1974–2010). It is found that neither overall export diversification nor the export diversification at the intensive margin has a significant impact on the choices of exchange rate regime in developing countries. However, export diversification in the extensive margin does exert a statistically positive effect on exchange rate regime choices, implying that a more diversified economy at the extensive margin is more likely to choose more flexible exchange rate regime. The conclusion is robust after a series of robustness tests when alternative exchange rate regime classifications, sample period setting and endogeneity are taken into consideration.

On the impact of real exchange rate movements of RMB on resource allocation efficiency

MAO Risheng;YU Linhui;WU Yan

The Journal of World Economy,2017,Vol 40,No. 04

【Abstract】 Based on the physical output data of above-scale firms from Chinese manufacturing industries, we estimated the cost markup of each firm after controlling the input price bias via several control functions. In addition, we empirically tested the impacts of exchange rate changes on the cost markup dispersion of firms. Three main results are derived: (i) the appreciation (or depreciation) of real exchange rate will significantly decrease (or increase) the cost markup dispersion within manufacturing industries. (ii) The real exchange rate changes have impacts on cost markup dispersion through both intensive and extensive margins. The appreciation of real exchange rate can either increase the cost markup dispersion of incumbent firms through export channel, or else decrease the dispersion substantially by speeding up enterprise exit and entry rate within industries through the import channel. (iii) The real exchange rate changes have asymmetric impacts on the cost markup dispersion of firms, in other words the depreciation of real exchange rate has much greater impacts than the appreciation of real exchange rate.

Impacts of the asymmetric variations of major currencies’ exchange rates on trade: a study based on the GVAR model

ZHANG Huiqing

Journal of International Trade,2018,No. 12

【Abstract】 Based on the theory of the global value chain, this paper uses a global vector auto-regression model to make an empirical analysis about the impacts of asymmetric variations of major currencies’ exchange rates on the trade of the world’s major economies. The findings reveal that both the appreciation of the US dollar and the depreciation of the Japanese yen have positive effects on China’ s imports and exports, but the depreciation of the euro has negative effects. Therefore, the overall impact on trade after the offsetting of opposite effects is negligible. The asymmetric exchange rate shocks lead to opposite changes of the export competitiveness of the US and that of Japan and the eurozone. The export growth of the eurozone and Japan has a significant crowding-out effect on US exports. Under the co-movement mechanism of the global value chain, most economies in the European production network and East Asian production network have increased foreign trade. However, suffering from the export shrinkage of the US, most economies in the North American production network have decreased foreign trade.

The path of exchange rate marketization and capital account liberalization

PENG Hongfeng;XIAO Zumian;ZHU Xiaoquan

The Journal of World Economy,2018,Vol 41,No. 08

【Abstract】 This paper constructs a DSGE model of open economy that includes capital controls and government interventions in the foreign exchange market. We estimate the economic welfare under different intensities of capital control and intervention in the exchange rate market, drawing a comparative analysis with the benchmark model. The results show that compared with the fixed or managed floating regime, the floating exchange rate regime, coordinated with the open capital account, leads to the highest level of economic welfare. In the managed floating exchange rate system, blindly decreasing the intensity of exchange rate market intervention, or the degree of capital control, will reduce the level of economic welfare. Once the intensity of intervention in the exchange rate market declines to a certain level, the exchange rate regime reform should be introduced to ensure the independence of monetary policy and macroeconomic stabilization. The simulation results suggest that the two major financial reforms should be coordinated, and that it is necessary to maintain capital control to a certain extent before exchange rate marketization is fully achieved.

Credibility of policies, exchange-rate regime and currency crises: implications from international experience and the market-based CNY exchange rate reform

WANG Daoping;FAN Xiaoyun;CHEN Lei

Economic Research Journal,2017,Vol 52,No. 12

【Abstract】 From the perspective of microstructure theory of foreign exchange market, this paper explained the exchange rate regime announced by a government and the influence of the credibility of the exchange rate policy on the currency crisis, and made an empirical analysis based on the empirical data of emerging markets and developing countries during 1970–2010. This study found that the greater the flexibility of exchange rate regime announced by a government and the tolerance for fluctuations in its own exchange rate are, the greater the probability of a currency crisis will be. In addition, if the credibility of a government’s exchange rate policy is low, it will be more likely to trigger a speculative attack on a country’s exchange rate by international speculative capital and increase the probability of a currency crisis. The market-oriented reform of CNY exchange rate should not allow the exchange rate to fluctuate freely and excessively, especially when dealing with international speculative attacks, the policy of trying to eliminate speculative attacks by expanding exchange rate flexibility may increase the probability of currency crises. To strengthen the correct expectation guidance and prudential supervision, it is necessary to introduce the “counter-cyclical factor” mechanism to prevent irrational emotions from amplifying the single market expectation and self-reinforcement, and improve the government’s credibility to maintain the policy of exchange rate stability, which will help to eliminate market panic, reduce speculative attacks and prevent currency crises.

Sudden stop in capital flows, exchange rate regimes and economic growth

LI Fang;LU Lu;LU Yiyang

Finance & Trade Economics,2018,Vol 39,No. 02

【Abstract】 Since 2007, sudden stops in capital flows have been taking place in China more frequently and on a larger scale, which challenges the reform of exchange rate regime. Based on the annual data of 149 economies, this paper tests the economic impact of sudden stops on countries with different exchange arrangements. It is found that a sudden stop does have a significant negative impact on a country’s economic growth. However, different impacts are associated with different exchange rate arrangements. In the case of sudden stops, the economies with less flexible exchange rate arrangements can suffer less due to lower inflation and more stable export. This finding provides empirical support for the countries’ application of pegged regimes when a sudden stop occurs, and also important policy reference for China to deal with the shocks from sudden stops during the reform of increasing the flexibility of exchange rate regime.

Forty years on the road of market-oriented RMB exchange rate reform: process, experience and prospects

DING Zhijie ;YAN Hao;DING Yue

Management World,2018,Vol 34,No. 10

【Abstract】 Exchange rate determination and the choice of exchange rate regime have been enduring topics in economics, while exchange rate management is an even more controversial issue. This paper evaluated the exchange rate reform of RMB from the dimensions of circumstance and objectives, which enables us to learn from history and examine theory by practice. Our findings suggest that exchange rate reform of RMB has basically achieved marketization. It is in the transition from independent to dependent variable in the macroeconomic management after fulfilling the mission being a tool to adjust economy. Reform leads to a gradual appreciation of RMB after dealing with the overvaluation issue, beating the rap of currency depreciation inertia. We argue that sticking to marketization and adopting gradual but positive exchange rate policy are the two most critical elements for a successful reform. The appropriate regime for China is a market-oriented managed floating exchange rate in consideration of the harmonization between government and market, which also indicates a direction for deepening exchange rate reform.

What weakens the price competiveness of China’s export? A new method of global value chain industrial-specific real effective exchange rate

NI Hongfu ;GONG Liutang ;XIA Jiechang

China Economic Quarterly,2019,Vol 18,No. 01

【Abstract】 Based on the latest theory of global value chain effective exchange rate theory, we provided the method of defining the global value chain industry-specific export real effective exchange rates for the first time. Moreover, we developed new concepts and methods of the global value chain bilateral industry-specific export (import) real effective exchange rates. We found the following. (1) During the period from 2005 to 2009, price competitiveness of China’s manufacturing export gradually disappeared due to the impact of appreciation of nominal exchange rate and weakening of relative cost advantage. In the future, because impact of the cost advantage can offset the impact of appreciation of exchange rate, it is hard for China’s industry to maintain the price competitiveness. (2) Global value chain bilateral industry-specific export real effective exchange rates are obviously superior to the traditional exchange rate indicators, and can well solve the paradox that appreciation of RMB exchange rate reduces China’s import.

CNY value-added effective exchange rate and the extended analysis to the non-tradable sector

YANG Panpan;LI Xiaoqin;XU Qiyuan

The Journal of World Economy,2019,Vol 42,No. 02

【Abstract】 This paper establishes the aggregate and industrial level CNY effective exchange rate (EER), providing a comprehensive range of data including 33 industries covering tradable and non-tradable sectors; it uses the value-added method to construct EER and thus promote a better understanding of China’s external competitiveness. The results show that CNY exchange rate increase is greater after adjusting weights by considering the global value chain from the aggregate perspective. In contrast to the conventional understanding, some non-tradable sectors also experience a high level of increase, which provides new policies and theoretical insights into the competitiveness of non-tradable sectors. Due to its greater integration into the global value chain and further opening-up to the outside world, China should consider the use of the VEER as an important tool to better understand the CNY external competitiveness and external shocks.

Research on the output effect of exchange rate appreciation under the framework of global output adjustment

ZHAO Yongliang;WU Chenxing;YU Pingping

The Journal of Quantitative & Technical Economics,2019,Vol 36,No. 02

【Abstract】 Research objectives: This paper is to evaluate the effect of currency appreciation on output based on global input-output connections. Research methods: We construct a theoretical model, and then utilize the data from World Input-Output Database (WIOD) to calculate the effect. Research findings: Currency appreciation has a negative effect on home country and a positive effect on foreign countries; wholesale industry and some other industries are sensitive to currency appreciation. Research innovation: We construct the framework of world output adjustment under the view of global value chain. Research value: Based on the model, we can calculate the effects of exogenous shocks on output.

How to promote the exchange rate marketization and capital account openness in the stage of high quality development of economy? Empirical evidence from 134 economies

QUE Chengyu;LI Jinkai;CHENG Liyan

Journal of Finance and Economics,2019,Vol 45,No. 05

【Abstract】 The promotion order between exchange rate marketization and capital account openness is one of the hotspots and debates in the field of international finance. Some scholars support the reform order of“internal first, external next,” while others believe that they should be promoted in a coordinated manner. In view of the above two points, some scholars try to use econometric methods such as the Granger causality test and VAR model to determine the promotion order, but these methods are often limited to the selection of samples and depend on the data to a large degree, and different samples may draw different conclusions. Due to the lack of a reference system, the promotion order between exchange rate marketization and capital account openness is not determined. What is the basis or determination? The economic development level, total factor productivity or financial stability? If there is no basis, it is difficult to make a clear judgment on the promotion strategy. If the reference system is abandoned, the investigation only based on the data does not have practical significance. In view of this, this paper refers to the study of Rodriguez (2017), constructs the influence equation of the exchange rate regime on total factor productivity (with capital account openness as the conversion variable) and the influence equation of capital account openness on total factor productivity (with the exchange rate system as the conversion variable) , respectively. Moreover, total factor productivity is selected as the reference system, and a non-linear modeling technology PSTR model is adopted to investigate the promotion strategy. It is revealed that the exchange rate regime has a significant non-linear effect on total factor productivity, the influence coefficient changes from negative to positive with the increase of capital account openness, which indicates that capital account openness can weaken the negative impact of exchange rate fluctuations on total factor productivity. The influence coefficient of capital account openness on total factor productivity is negative, and it shows obvious stage characteristics with the change of the exchange rate regime. When the exchange rate regime is flexible enough, its negative impact decreases significantly, which indicates that a more flexible exchange rate regime is conducive to absorbing the negative impact of capital account openness.Therefore, with total factor productivity as a reference system, there is a mutual adjustment mechanism between exchange rate marketization and capital account openness. Capital account openness is the premise of exchange rate marketization, and exchange rate marketization is also the prerequisite of capital account openness. They should be promoted in a coordinated way. Compared with the existing results, the possible contributions of this paper are as follows. First, the exchange rate regime and capital account openness are taken as the key explanatory variable and adjustment variable respectively, which enriches the literature with respect to the promotion order of exchange rate marketization and capital account openness, and overcomes the shortcomings of the existing literature that only employ one of them as the key explanatory variable and adjustment variable, making the research more comprehensive and detailed. Second, compared with most existing literature that directly adopt the interactive terms (only the first-order non-linear relations can be identified) , this paper utilizes a non-linear method—the PSTR model, which can identify higher-order non-linear relations and solve the problem of missing implicit non-linear relations. Third, compared with most existing literature focusing on economic growth or financial crisis, this paper conducts the analysis from the perspective of total factor productivity to re-judge the promotion order. The study can provide theoretical support and a decision-making basis for how to promote exchange rate marketization and capital account openness in the constitutive reform and transition from quantitative growth to qualitative development of China’s economic development.

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