Exchange Rate Flexibility in China: Measurement,Regime Shifts and Driving Forces of Change |
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Authors: | Robert Dixon Zhichao Zhang Yang Dai |
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Institution: | Durham University Business School, Mill Hill Lane, Durham, UK |
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Abstract: | With an emphasis on government intervention that hinders market forces in currency movements, this paper presents a nuanced investigation of the degree and dynamics of flexibility in China's exchange rate regime. A high‐frequency data model is developed to more accurately detect the extent to which the Chinese currency is market‐driven. This indicator is then utilized in a Markov switching model to examine shifts in RMB regime flexibility. The results suggest a moderate increase in exchange rate flexibility since the 2005 reform. Additionally, two switching states are captured, and possible driving factors are discussed. |
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