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The quest for determinants of Chinese exchange rate policy

Author

Listed:
  • Jakub Borowski

    (Warsaw School of Economics, Collegium of World Economy, Chair of Economics II)

  • Adam Czerniak

    (Warsaw School of Economics, Collegium of World Economy, Chair of Economics II)

  • Krystian Jaworski

    (Credit Agricole Bank Polska)

Abstract

This paper examines the decision function of the People�s Bank of China concerning setting of the renminbi exchange rate against the U.S. dollar. We use an ordinal dependent variable model to check whether main macroeconomic variables and repeated complaints from U.S. institutions and officials about the Chinese exchange rate had an influence on the Chinese exchange rate policy in the period 2000?2011. The results of estimation show that GDP growth, trade balance and pressure from the U.S. on greater exchange rate flexibility had a positive impact on the probability of renminbi exchange rate appreciation. These findings suggest that the primary goal of the exchange rate policy in China is to support the export sector. This goal, however, is compromised by allowing the renminbi to appreciate under pressure from the U.S. Treasury. This suggests that in large open economies the exchange rate policy cannot be pursued regardless of its international ramifications.

Suggested Citation

  • Jakub Borowski & Adam Czerniak & Krystian Jaworski, 2014. "The quest for determinants of Chinese exchange rate policy," Bank i Kredyt, Narodowy Bank Polski, vol. 45(5), pages 407�432-4.
    • Handle: RePEc:nbp:nbpbik:v:45:y:2014:i:5:p:407-432
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    exchange rate policy; ordinal dependent variable model; global rebalancing; renminbi; People Bank of China; currency manipulator;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F2 - International Economics - - International Factor Movements and International Business

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