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RMB Exchange Market Pressure and Central Bank Exchange Market Intervention
Author(s) -
Liu Xiaohui,
Zhang Jing
Publication year - 2009
Publication title -
china and world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.815
H-Index - 28
eISSN - 1749-124X
pISSN - 1671-2234
DOI - 10.1111/j.1749-124x.2009.01151.x
Subject(s) - renminbi , exchange rate , central bank , currency , monetary economics , economics , china , currency crisis , foreign exchange market , intervention (counseling) , international economics , monetary policy , geography , archaeology , psychology , psychiatry
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.