THE TIME-VARYING CAUSAL RELATIONSHIP BETWEEN INTERNATIONAL CAPITAL FLOWS AND THE REAL EFFECTIVE EXCHANGE RATE: NEW EVIDENCE FOR CHINA

Yanping Zhao, Xiaoyan Li () and Jakob de Haan
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Yanping Zhao: School of Economics, Ocean University of China, Shandong, China
Xiaoyan Li: School of Economics, Ocean University of China, Shandong, China

The Singapore Economic Review (SER), 2022, vol. 67, issue 04, 1253-1274

Abstract: We test the bilateral causal relationship between four types of international capital flows and the real effective exchange rate (REER) in China over the period 1998:Q1 to 2016:Q2 and examine whether the link is time varying. Parameter stability tests suggest that the relationship between capital flows and the RMB REER is time varying both in the short and the long run. Bootstrap rolling-window causality tests suggest bidirectional Granger causal relationships between the current account, portfolio investments and FDI, and the REER in several sub-periods, and a Granger-causal relationship from foreign exchange reserves to the REER in some sub-periods.

Keywords: International capital flows; real effective exchange rate; rolling windows; structural change (search for similar items in EconPapers)
JEL-codes: F21 F31 F32 O24 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S0217590819500097

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