The Chinese renminbi's co-movement with the US dollar: Addressing the numéraire issue
Finance Research Letters, 2021, vol. 40, issue C
The Chinese renminbi moved to a managed floating exchange rate regime on the 21st of July 2005. We measure the renminbi's co-movement with the US dollar in this new regime with the Frankel-Wei regression framework, which has a well-known numéraire issue. The numéraire is responsible for a biased estimator of the regression coefficient. We measure this bias and propose an alternative risk-free multicurrency numéraire that removes the bias. We find that the unbiased estimated regression coefficient the renminbi's co-movement with the US dollar has reduced from an average of 0.927 for 2005-15, to an average of 0.517 for 2018-19.
Keywords: Foreign; Exchange; Rates (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:40:y:2021:i:c:s1544612320300957
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