Would a Relaxation of the Exchange Rate Regime Increase the Independence of Chinese Monetary Policy? Evidence from China

Shaoyu Li and Li-Chuan Tsai

Emerging Markets Finance and Trade, 2013, vol. 49, issue 3, 103-123

Abstract: Some policymakers and academic researchers suggest that relaxing the exchange rate regime will increase the independence of Chinese monetary policy. To test this argument, we estimate spot interest rate models with dummy variable sets and derive an economic interpretation. The empirical results suggest that a relaxation of the exchange rate regime increases the independence of market-based monetary policy; however, it weakens the independence of monetary policy for forecasting future normal events, and it also imposes an ambiguous impact on the independence of monetary policy for forecasting future rare events.

Keywords: exchange rate regime; hot money; initial public offerings; market-based monetary policy; speculative arbitrage (search for similar items in EconPapers)
Date: 2013
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