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Exchange Rate Regime Verifi cation: Has China Actually Moved from a Dollar Peg to a Basket Peg? Peg?

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Author Info

  • Moosa, Imad

    ()
    (Monash University)

  • Naughton, Tony

    ()
    (RMIT University)

  • Li, Larry

    ()
    (RMIT University)

Abstract

An attempt is made to verify the exchange rate regime that China has been following since 21 July 2005 when a policy shift was implemented, presumably taking China from a dollar peg to a basket peg. The results show that while a regime of simple and strict dollar peg has indeed been abandoned, the evidence does not support the proposition that the current exchange rate regime is a basket peg. It is suggested, based on the empirical results, that the current Chinese regime is some sort of a discretionary crawling peg against the U.S. dollar. It is argued that this regime is consistent with the Chinese objectives of maintaining a competitive advantage while avoiding a trade war with the U.S.

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Bibliographic Info

Article provided by Camera di Commercio di Genova in its journal Economia Internazionale / International Economics.

Volume (Year): 62 (2009)
Issue (Month): 1 ()
Pages: 41-67

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Handle: RePEc:ris:ecoint:0013

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Related research

Keywords: China; Exchange Rate Regime Verification; Basket Peg; Crawling Peg;

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  1. Jeffrey A. Frankel & Shang-Jin Wei, 1994. "Yen Bloc or Dollar Bloc? Exchange Rate Policies of the East Asian Economies," NBER Chapters, in: Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows, NBER-EASE Volume 3, pages 295-333 National Bureau of Economic Research, Inc.
  2. Pesaran, M.H. & Shin, Y., 1993. "Cointegration and Speed of Convergence to Equilibrium," Cambridge Working Papers in Economics 9311, Faculty of Economics, University of Cambridge.
  3. Davidson, Russell & MacKinnon, James G, 1981. "Several Tests for Model Specification in the Presence of Alternative Hypotheses," Econometrica, Econometric Society, vol. 49(3), pages 781-93, May.
  4. Agnès Bénassy-Quéré, 1996. "Exchange Rate Regimes and Policies in Asia," Working Papers 1996-07, CEPII research center.
  5. Fisher, Gordon R. & McAleer, Michael, 1981. "Alternative procedures and associated tests of significance for non-nested hypotheses," Journal of Econometrics, Elsevier, vol. 16(1), pages 103-119, May.
  6. Godfrey, L. G. & Pesaran, M. H., 1983. "Tests of non-nested regression models: Small sample adjustments and Monte Carlo evidence," Journal of Econometrics, Elsevier, vol. 21(1), pages 133-154, January.
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