The Political Cause of the Movement of RMB Exchange Rate: A Research Based on the Spillover Effects of US Political Cycle

Mengnan Zhu (), Qian Zhao () and Yuguang Wang ()
Additional contact information
Mengnan Zhu: School of Economics, Xiamen University, Xiamen 361005, China
Qian Zhao: School of Economics, Xiamen University, Xiamen 361005, China
Yuguang Wang: School of Economics, Xiamen University, Xiamen 361005, China

Frontiers of Economics in China-Selected Publications from Chinese Universities, 2016, vol. 11, issue 4, 694-731

Abstract: Movement of the renminbi (RMB) exchange rate is not only affected by economic factors, but also by political factors home and aboard. This paper analyzes the transmission mechanism of political cycles on the RMB exchange rate first, and then sets up a ¡°political cycle spillover effect model¡± followed by an empirical analysis. We find that: (1) the US political cycle has a direct effect on the RMB exchange rate in the short run, which is mainly transmitted by capital flows and China¡¯s exchange rate policy control; (2) the RMB exchange rate changes periodically in accordance with the US presidential election and midterm election cycle, with the appreciation ratio significantly lower in the first year of the election cycle, while significantly higher in the year after the midterm election; (3) The effect of the political cycle will not be affected by which party holds power, though it will be affected if the president and parliament are ruled by the same party. This paper not only extends the research of the influencing factors of the RMB exchange rate to the political field, but also sets up a use theoretical model to analyze the impact of political issues on the RMB exchange rate, providing a new perspective to fully understand the external environment of RMB exchange rate reform.

Keywords: political cycle; spillover effect; RMB exchange rate (search for similar items in EconPapers)
JEL-codes: D72 E44 F41 O11 (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations:

Downloads: (external link)
http://journal.hep.com.cn/fec/EN/10.3868/s060-005-016-0034-7 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fec:journl:v:11:y:2016:i:4:p:694-731

Access Statistics for this article

Frontiers of Economics in China-Selected Publications from Chinese Universities is currently edited by LONG Jie

More articles in Frontiers of Economics in China-Selected Publications from Chinese Universities from Higher Education Press
Bibliographic data for series maintained by Frank H. Liu ().