Foreign Exchange Market Pressure and Monetary Policy: An Empirical Study Based on China’s Data

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Foreign Exchange Market Pressure and Monetary Policy: An Empirical Study Based on China’s Data

Author Info

Liu, L.
Ni, Y.J

Abstract

The reform of exchange rate system in 2005 has settled down the floating exchange rate system with management in China. Until August this year, RMB/USD has appreciated about 16.65%. This paper measures the exchange market pressure (EMP) on RMB/USD, and use VAR model to analyze the relationship between EMP and domestic monetary policy . And from the results we find that the increase of China’s domestic interest rate of is the main cause of RMB pressure of appreciation, but the foreign interest rate has little effects on the pressure and it can affect the growth rate of China’s domestic credit. So,we deem that the theory of "ternary paradox" may not applicable to China, at least in the period of our investigation.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14491.

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Date of creation: 10 Jan 2009
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Handle: RePEc:pra:mprapa:14491

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
F31 - International Economics - - International Finance - - - Foreign Exchange

This paper has been announced in the following NEP Reports:

NEP-ALL-2009-04-13 (All new papers)
NEP-IFN-2009-04-13 (International Finance)
NEP-MON-2009-04-13 (Monetary Economics)
NEP-TRA-2009-04-13 (Transition Economics)

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This page was last updated on 2009-11-30.

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