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RMB Exchange Market Pressure and Central Bank Exchange Market Intervention

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  • Xiaohui Liu
  • Jing Zhang

Abstract

The present paper uses the model-dependent and the model-independent approach to measure the RMB exchange market pressure (EMP) and the central bank's intervention using monthly data from January 1999 to June 2008. It is determined that the RMB has been under great appreciation pressure over the past decade. However, the pressure has been weakening since 2005. The two approaches provide significantly different results in terms of the estimated RMB EMP indices and the estimated central bank's interventions. The differences may lead to different predictions of potential currency crises. According to the estimation of the RMB EMP, and based on the model-independent approach, the paper shows that China has been under threat of an appreciation currency crisis since 2008. Therefore, China should adopt a more flexible exchange rate regime to prevent a potential crisis. Copyright (c) 2009 The Authors Journal compilation (c) 2009 Institute of World Economics and Politics, Chinese Academy of Social Sciences.

Suggested Citation

  • Xiaohui Liu & Jing Zhang, 2009. "RMB Exchange Market Pressure and Central Bank Exchange Market Intervention," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 17(3), pages 75-92.
  • Handle: RePEc:bla:chinae:v:17:y:2009:i:3:p:75-92
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    Cited by:

    1. Xiaohui Liu & Conglai Fan, 2010. "The model and empirical estimation of the optimal flexibility of RMB exchange-rate regime: A study based on the price-stabilization," Frontiers of Economics in China, Springer;Higher Education Press, vol. 5(2), pages 187-209, June.
    2. Dai, Meixing, 2011. "Motivations and strategies for a real revaluation of the Yuan," MPRA Paper 30440, University Library of Munich, Germany.

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