Analysis on the Option of RMB Exchange Rate Regime

This paper analyses four effects of pegging exchange rate regime： effects on government policymaking, nominal anchor, domestic currency appreciation expectation, and currericy speculative attacks. Based on this, the paper concludes that China should give up RMB pegging exchange rate regime at present, carry out RMB floating exchange rate regime in the long term and RMB exchange rate target zone regime in the mid and short term.     

The Appreciation Pressure on RMB Yuan and the Adjustment of RMB Exchange Rate Policy

China has maintained RMB exchange rate nearly unchanged since 1998. However, with the relaxation of capital control, a crawling peg, a more flexible RMB exchange rate regime, is inevitable. Based on improving the current formation mechanism of RMB exchange rate, Chinese government could widen the floating band around the central parity; in the long run, switching the peg from USD alone to a basket of currencies may be a better choice.     

China＇s Exchange Rate System——A Policy Perspective

Like most developing countries, China has been adopting a multiple exchange rate regime in its attempt to maintain control and order while liberalizing transactions in the sphere of trade, non-trade and crossborder fund flows. From a very rigid, highly centralized regime in 1979, China has by now advanced to a relatively flexible system under which the official rate, the swap rate, and the ＂free＂ market rate coexist. The tight control of international transfer of funds has also been progressively relaxed, as different parties gain increasing freedom to acquire foreign exchange. The Chinese economy has been reasonably stable during the Asian financial crisis. Although China maintains the exchange rate stability, in near future a real appreciation of the RMB must be necessary element in global adjustment. More flexible exchange rate will give more advantages for Chinese economy.     

Monetary Policy Regime Shifts and Uncovered Interest Parity Revisited: The Euro–US Dollar Exchange Rate

ABSTRACT

To explore possible sources of the well-documented uncovered interest parity (UIP) violation in the foreign exchange market, this paper scrutinizes structural changes in monetary reactions to inflationary pressure in the conventional approaches to nominal exchange rate and examines how this small but important change has an effect on the empirical implications of the UIP condition. In addition to some salient features found in the euro exchange rate, by introducing occasional monetary policy regime shifts into an otherwise standard open-economy dynamic general equilibrium model, we found some important findings that potentially help better understand exchange rate dynamics. During the entire sample period, 1999:M1–2014:M8, exchange rate disconnect puzzle still exists. However, sub-sample analysis suggests that relatively passive monetary reaction implying less frequent intervention by monetary authority tends to be more consistent with the UIP relation. Simulation results support the empirical regularities.     

China’s rural institutions and governance since the beginning of the rural reform

ABSTRACT

This paper looks at how China governs its vast rural territories. The structure of rural governance relies not only on the extent and form of the state’s authority, but also on the principal–agent relationship between the state and local stakeholders, as well as the role of the informal institutional arrangements that serve as the foundation for rural governance. China’s 40 years of reform and opening have led to the transformation of rural China into urban and rural China. The rules and order of informal institutions have evolved and changed significantly, and the cost-benefit structure of formal state governance has been amended. The appropriate rural governance system for village transformation improves the performance of the country’s direct governance and the entrustment–agent system for village governance. Further, the rural governance system balances formal and informal institutions to achieve an effective institutional arrangement.     

The effects of China’s split-share reform on firms’ capital structure choice

China’s split-share structure reform in 2005–2006 mitigates agency conflicts between controlling shareholders and minority shareholders and thus may bring substantial changes to corporate financing behaviour. This article examines the impact of that reform on the capital structure decisions of firms by applying a variety of trade-off and pecking-order models. Using data from 1176 non-financial Chinese listed firms during the period 2000–2012, we present empirical evidence indicating that equity tracks the financing deficit better than debt in Chinese firms, a finding which is not consistent with pecking-order theory. This phenomenon is more prominent after 2006 as share reform increases trading activity in the secondary stock market and improves the transparency of financial markets. In addition, Chinese firms have an optimal leverage ratio and they adjust below-target leverage ratios faster than above-target leverage ratios after the implementation of share structure reform, although they make symmetric adjustments towards the target leverage ratio before 2007. Finally, recent share reform has prompted Chinese firms to more quickly address the divergence of actual leverage ratios from long-term target levels, but has slowed their response to short-term target leverage divergence.     

The China＇s Mode Reform Process of Market Economy System and the Level of Marketization

During the new epoch of reform, the discussion and practice launched by the government and the Communist Party of China （CPC） has experienced 4 stages. Since 1992, China has entrenched formally establishing the Socialist Market Economy System, which is a so-called China＇s Mode development way led by the Deng Xiaoping＇s theory. This paper tries to set up an index system to evaluate the development level of China＇s market economy from 1992 to 2001.     

Effect of China’s Real Exchange Rate Appreciation in the Next Decade: A Recursive Dynamic CGE Analysis

Although the renminbi has appreciated over 30% against the US dollar since China launched exchange rate reform in the mid of 2005, the US Treasury Department still claims that the renminbi remains “significantly undervalued”. If that is true, how to adjust the currency effectively and rebalance the current account are challenges for the Chinese government. This paper explores the effect of alternative adjustments of China’s real exchange rate. Unlike previous simulation designs, this paper considers the formation mechanism of the real exchange rate. By assuming the same change in factor price during different periods and by using the recursive dynamic computable general equilibrium model, two different scenarios are simulated against the baseline. One scenario adjusts the macro-structural imbalance by decreasing the gross national savings rate in China, and the other adjusts the micro-structural imbalance by increasing the real wage rate of Chinese labor. The external imbalance is improved by both internal structural adjustments in the long term. The effect of macro-adjustment is more significant than the micro-adjustment. A real appreciation will be sufficient for China to improve its terms of trade and to change the export-oriented model into the demand-oriented model of development in the next decade.     

The Relationship Between RMB＇s Exchange Rate and Regional Industrial Structure

开放经济条件下,汇率是影响产业结构的重要因素。利用1995—2009年中国30个省级地区的面板数据,并根据区域差异进行东、中、西分类,实证考察了人民币汇率与各地产业结构之间的关系。研究表明,人民币升值有利于产业结构的升级,且不同区域间汇率与产业结构的关系存在一定差异。结论为各地产业政策的制定提供了一定参考。     

The myth of China’s monetization

This article develops a simple model of M2/GDP based on the money demand function of Milton Friedman. This model proves that M2/GDP is positively related to the expected wealth and negatively related to the opportunity costs of holding money. China’s extremely high monetization ratio as measured by M2/GDP is the result of a decades-long rapid economic growth and a depressed financial system. Fast economic growth leads to high expected wealth. A depressed financial system leads to low opportunity costs of holding money. The combination of those two factors increases money demand and leads to very high M2/GDP. The model is verified indirectly by testing two implied testable hypothesizes. The study of this article raises questions on the accuracy of M2/GDP as a measure of monetization.     

The Dragon-shape Strategy of China＇s Regional Economic Development and Policy Analysis

According to this paper, the dragon-shape strategy is the optimized option of China＇s future strategy with respect to the geographic distribution of regional economy.     

Empirical Regularities of Financial Market Volatility and Good Modelling Process: Developing Countries’ Exchange Rate Markets Perspective

A survey of contemporary literature suggests that empirical studies on developing economies are few or almost non-existent. Engle and Patton (2001, What good is a volatility model. Quantitative Finance, 1, 237–245) as well as Poon (2005, A Practical Guide to Forecasting Financial Market Volatility. New Jersey: Wiley.) suggest that a good volatility model is one that utilizes the empirical regularities of financial market volatility (of which most were observed on industrialized economies markets). This paper uses exchange rate series from Ghana, Mozambique and Tanzania to show that;

1. they are not different from other financial markets as they exhibit most of the empirical regularities including volatility sign asymmetry, non-normal distribution and volatility clustering. It is however observed that the three exchange rate series are very volatile, with induced volatile shocks highly persistent and asymmetric, and extreme prices commonplace;

2. the ARCH technique (which has been well documented to capture these empirical regularities and produce good forecasts) generally produced a good fit to the three exchange rate series when compared with volatility forecasts generated using the EWMA technique. In the simple analysis of a day-ahead volatility forecast abilities of estimated models, it was observed that best fit does not necessarily ensure best forecast.

     

China’s value-added tax reform,firm behavior and performance

China reformed value-added tax (VAT) by removing investment from the tax base in northeastern provinces in 2004, which is a “natural experiment” of its tax system. Using difference-in-differences method, this paper for the first time investigates the impact of VAT reform on China firms’ fixed asset investment, employment behavior, innovative activities, and productivity, and furthermore discusses the impact of firm behavior on industrial structural upgrade and employment with a firm-level panel data of large and medium-sized manufacturing enterprises in China. We find that VAT reform significantly promotes firms’ fixed asset investment, and increases firms’ capital-labor ratio and productivity; while enhancement of firms’ productivity is mainly achieved by means of substituting labor with capital, rather than independent technology innovation; meanwhile, VAT reform distinctly decreases employment. Our findings have essential policy implications on the extension of VAT reform in the entire China.     

The Time-varying Impact of China’s Economic Rebalancing on Korea’s Exports to China

While China seeks to shift from exports and investment to a consumption-oriented economy and to increase the self-sufficiency rate of exports, this study uses time-varying parameter vector autoregression (TVP-VAR) to examine the impact of economic structural changes in China on Korea’s exports to China over time. The study results suggest that the impact of China’s export shocks on Korea’s exports has weakened, which demonstrates the slowdown in regional production fragmentation, considering that Korea’s export goods are mainly intermediate goods. Instead, the influence of China’s domestic demand shock on Korea’s exports has expanded, which implies that China has increasingly become the final destination of intermediate goods made in Korea.     

The role of price risk in China’s agricultural and fisheries exports to the US

This article explores the effect of price risk on the US importers’ optimal allocation of agriculture imports between the major supplier, China, and other competing countries. We first modify a demand system to account for the impacts of own-price risk and cross-price risk, and then apply the model to 16 agricultural and fisheries commodities exported to the US. The estimation results show that importers are sensitive to price risks of 14 Chinese commodities. Comparisons between price risk–trade relations of agricultural and fisheries products and between trade effects of cross-price risk on Chinese goods and substitutes provide strong evidence for explaining the observed trade patterns. Our study highlights the importance of price stability in promoting international trade, especially from developing countries to developed countries.     

Time-Varying Fundamentals of the Euro–Dollar Exchange Rate

Abstract

This study examines changes in the impact of the economic fundamentals on the euro–dollar exchange rate. First, the monetary model is augmented with the equity markets and the model is estimated in its structural form. Second, the time-varying impacts of the long-run fundamentals representing equilibrium in different markets on the euro–dollar exchange rate are examined using Kalman filtering. The time-varying structural model indicated that the relative importance of the different fundamentals was not equal and the impact of the fundamentals was time-dependent.     

China’s competition and the export price strategies of developed countries

This paper analyzes the impact of Chinese competition on developed countries’ export prices. The empirical application is on Italy, one of the main European manufacturing exporters with exports at high risk of competition from China. Our results show that, following China’s entry into the WTO, the price strategies of Italian firms has been affected. While in general the increasing Chinese export competition resulted in an upgrading of products exported, the impact has been different according to the sector and technological level. The incentives to upgrade have been stronger for low technology sectors, where competition is tougher and varieties of products sold lower. To highlight quality differentials, and isolate the effects on the different segments of the distribution of Italy’s export prices, we run quantile regressions. We find that are mainly those products sold at low prices to face a strong pressure to upgrade.     

Network Access Regulation and Competition Policy: An Assessment of the “Direct-Plus-Opportunity Cost” Regime and Policy Options

A fundamental issue when determining competition policy, especially in vertically integrated industries, is the formulation of interconnection charges. Recently an influential set of theories on network access price has been put forward under the broad heading of direct-plus-opportunity cost regime (DOCR). This paper deals with two distinct but related aspects of DOCR. The first part of the paper considers the policy implications of an access regime determined by DOCR. Its compatibility in attaining contestable outcomes in the final goods market and its effect on welfare gains, especially producer's surplus, are evaluated. Secondly, the paper empirically applies a version of DOCR to the UK contract gas market, and the simulated outcomes and possible scenarios are considered.     

The Analysis of High Exchange Reserve and High National Saving in China

High resident saving and high foreign exchange reserve are the inevitable products in China during the period from planned economy to market economy, and there is high correlation between them. On the one hand, this kind of economic phenomenon can＇t persist in a long time; on the other hand, to implement relevant fiscal and monetary policy, foreign trade policy, and foreign exchange management policy to change them in view of their negative effects to present economy is one of the present economic tasks.     

The Recent Development of International Exchange Market and its Effects on China

1. The Key Points of Recent Development of International Exchange Market The unusual fluctuation of international exchange market lies in the following three facts： firstly, there are irreconcilable contradictions in current international monetary system, caused by USA which is the core of cttrrent int#rnational monetary system and has been carrying out irresponsible economic policies for a long time. Secondly, thel economic structure of USA loses balance seriously. Thirdly, the balance of payments （BP） becomes a tough problem for the USA government.