The quest for determinants of Chinese exchange rate policy

Jakub Borowski, Adam Czerniak and Krystian Jaworski ()
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Krystian Jaworski: Credit Agricole Bank Polska

Bank i Kredyt, 2014, vol. 45, issue 5, 407�432

Abstract: This paper examines the decision function of the People�s Bank of China concerning setting of the renminbi exchange rate against the U.S. dollar. We use an ordinal dependent variable model to check whether main macroeconomic variables and repeated complaints from U.S. institutions and officials about the Chinese exchange rate had an influence on the Chinese exchange rate policy in the period 2000?2011. The results of estimation show that GDP growth, trade balance and pressure from the U.S. on greater exchange rate flexibility had a positive impact on the probability of renminbi exchange rate appreciation. These findings suggest that the primary goal of the exchange rate policy in China is to support the export sector. This goal, however, is compromised by allowing the renminbi to appreciate under pressure from the U.S. Treasury. This suggests that in large open economies the exchange rate policy cannot be pursued regardless of its international ramifications.

Keywords: exchange rate policy; ordinal dependent variable model; global rebalancing; renminbi; People Bank of China; currency manipulator (search for similar items in EconPapers)
JEL-codes: C25 E58 F2 (search for similar items in EconPapers)
Date: 2014
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