Yen/Dollar volatility and Chinese fear of floating: Pressures from the NDF market

Li Gu and Paul McNelis ()

Pacific-Basin Finance Journal, 2013, vol. 22, issue C, 37-49

Abstract: This paper examines financial market data to assess the likelihood of Renminbi appreciation and its implications for Chinese financial markets, given the continuing volatility of the exchange rate between the US Dollar and the Japanese Yen. Using VAR and Bayesian VAR estimation, we find that the 3-month Non-deliverable Forward premia are a key series which link Yen/Dollar volatility to financial market movements in China through speculative pressure. By contrast, the NDF market for the Korean Won, based on more flexible spot exchange market and open access by domestic banks, plays little or no role linking Yen/Dollar to domestic currency or financial markets in Korea.

Keywords: Prediction; Bayesian forecasting; Out-of-sample Granger tests of causality; Nested models; VAR; Bayesian VAR (search for similar items in EconPapers)
JEL-codes: G14 G15 G18 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:22:y:2013:i:c:p:37-49

DOI: 10.1016/j.pacfin.2012.09.002

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