How do the Renminbi and other East Asian currencies co-move?

Benjamin Keddad ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates the degree and the nature of exchange rate co-movements between the Renminbi and a set of seven East Asian currencies by estimating Markov switching models with regime-dependent correlations and time-varying transition probabilities. These models have several advantages. First, exchange rate co-movements can vary across different depreciation and appreciation regimes. Second, the Renminbi can act as a transition variable that provides information regarding how the exchange rates evolve over time. After controlling for global effects and exchange market pressures, the results yield robust evidence of the Renminbi's rising role in East Asia as a significant factor in currency fluctuations. A key result is that regional currencies tend to overreact when the Renminbi depreciates and underreact when it appreciates, suggesting that East Asian economies are not willing to allow their currencies to substantially appreciate against the Chinese currency. Finally, trade transactions and competition as well as financial flows demonstrate significant explanatory power regarding currency movements against the Renminbi -- particularly during episodes of smaller exchange rate fluctuations.

Keywords: Exchange Rates; East Asia; Renminbi Impact; Markov Switching Models; Asymmetric Co-movements; Time-Varying Transition Probabilities (search for similar items in EconPapers)
JEL-codes: F31 F41 F42 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-mon and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: How do the Renminbi and other East Asian currencies co-move? (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:83782

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