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Do external political pressures affect the Renminbi exchange rate?

  • Liu, Li-Gang
  • Pauwels, Laurent L.

This paper investigates whether external political pressure for faster Renminbi appreciation affects both the daily returns and the conditional volatility of the Renminbi central parity rate. We construct several political pressure indicators pertaining to the Renminbi exchange rate, with a special emphasis on the US pressure, to test the hypothesis. After controlling for Chinese macroeconomic surprise news, we find that US and non-US political pressure does not have a significant influence on Renminbi's daily returns. However, evidence suggests that political pressures, and especially those from the US, have statistically significant impacts on the conditional volatility of the Renminbi. Furthermore, we conduct the same exercise on the 12-month Renminbi non-deliverable forward rate. We find that the non-deliverable forward market is highly responsive to macroeconomic surprise news and there is some evidence that Sino-US bilateral meetings affect the conditional volatility of the Renminbi non-deliverable forward rate.

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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 31 (2012)
Issue (Month): 6 ()
Pages: 1800-1818

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Handle: RePEc:eee:jimfin:v:31:y:2012:i:6:p:1800-1818
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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