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The Undisclosed Renminbi Basket: Are The Markets Telling Us Something About Where The Renminbi - US Dollar Exchange Rate Is Going?

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Author Info
Funke, Michael () (BOFIT)
Gronwald, Marc () (BOFIT)

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Abstract

On 21 July 2005 China adopted an undisclosed basket exchange rate regime. We formally assess and envisage the gradual evolution of the renminbi over time. We utilize nonlinear dependencies in the renminbi exchange rate and describe the smooth transition of the renminbi/U.S. dollar (RMB/USD) exchange rate using the family of time-varying autoregressive (TV-AR) models. Specifically, the nonlinear models allow for a smooth transition from one optimal level to another. Our estimation results imply that the RMB/USD exchange rate will likely be about 7.42 RMB/USD in summer/autumn 2008.

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Publisher Info
Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 20/2007.

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Length: 27 pages
Date of creation: 06 Nov 2007
Date of revision:
Handle: RePEc:hhs:bofitp:2007_020

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Related research
Keywords: China; renminbi; de facto exchange rate regime; TV-AR model; TV-AR-GARCH mode;

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
F31 - International Economics - - International Finance - - - Foreign Exchange
F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation

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  4. GAULIER, Guillaume & LEMOINE, Francoise & UNAL-KESENCI, Deniz, 2007. "China's emergence and the reorganisation of trade flows in Asia," China Economic Review, Elsevier, vol. 18(3), pages 209-243. [Downloadable!] (restricted)
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  5. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear Of Floating," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 379-408, May. [Downloadable!] (restricted)
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  6. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2007. "The Overvaluation of Renminbi Undervaluation," NBER Working Papers 12850, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Lundbergh, Stefan & Terasvirta, Timo & van Dijk, Dick, 2003. "Time-Varying Smooth Transition Autoregressive Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(1), pages 104-21, January.
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  8. Skalin, Joakim & Teräsvirta, Timo, 1998. "Modelling asymmetries and moving equilibria in unemployment rates," Working Paper Series in Economics and Finance 262, Stockholm School of Economics, revised 05 Oct 1998.
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  10. Matthew T. Holt & Lee A. Craig, 2006. "Nonlinear Dynamics and Structural Change in the U.S. Hog-Corn Cycle: A Time-Varying STAR Approach," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 88(1), pages 215-233, 02. [Downloadable!] (restricted)
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  12. van Dijk, Dick & Teräsvirta, Timo & Franses, Philip Hans, 2000. "Smooth Transition Autoregressive Models - A Survey of Recent Developments," Working Paper Series in Economics and Finance 380, Stockholm School of Economics, revised 17 Jan 2001. [Downloadable!]
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  13. Cao, Liangyue & Soofi, Abdol S., 1999. "Nonlinear deterministic forecasting of daily dollar exchange rates," International Journal of Forecasting, Elsevier, vol. 15(4), pages 421-430, October. [Downloadable!] (restricted)
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