RMB Exchange Market Pressure and Central Bank Exchange Market Intervention |
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Authors: | Xiaohui Liu Jing Zhang |
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Affiliation: | Lecturer, Chinese Finance Research Institute, Southwestern University of Finance and Economics, Chengdu, China. Email:;;Lecturer, Finance Department, Southwestern University of Finance and Economics, Chengdu, China. Email: . |
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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. |
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Keywords: | exchange market intervention exchange market pressure model-dependent approach model-independent approach |
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