Do External Political Pressures Affect the Renminbi Exchange Rate?

Li-gang Liu, Laurent Pauwels and Jun-yu Chan
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Li-gang Liu: Research Department, Hong Kong Monetary Authority
Jun-yu Chan: Research Department, Hong Kong Monetary Authority

No 805, Working Papers from Hong Kong Monetary Authority

Abstract: This paper investigates whether external political pressures calling for faster renminbi (RMB) appreciation have any statistically significant effect on both the daily returns and the conditional volatility of the RMB central parity rate. We construct various external pressure indicators according to the sources of foreign political pressures pertaining to the RMB exchange rate, with a special emphasis on the pressures originated in the United States. After controlling for the underlying domestic factors, we find that neither the overall foreign pressure indicator nor the US-specific pressure indicator has any significant influence on RMB¡¦s daily returns. However, there is strong evidence to suggest that external pressures, and especially those from US sources, have a statistically significant impact on the conditional volatility of the RMB exchange rate. In other words, even though external pressures do not seem to have systematic influence on the speed of the RMB appreciation, they do seem to influence the uncertainty in the daily changes of the RMB exchange rate.

Keywords: Renminbi exchange rate; Conditional volatility; Event studies; Macroeconomic news or surprises (search for similar items in EconPapers)
JEL-codes: F31 G10 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2008-05
New Economics Papers: this item is included in nep-cba, nep-cna, nep-ifn and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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http://www.info.gov.hk/hkma/eng/research/working/pdf/HKMAWP08_05_full.pdf (application/pdf)

Related works:
Journal Article: Do external political pressures affect the Renminbi exchange rate? (2012)
Working Paper: Do External Political Pressures Affect the Renminbi Exchange Rate? (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:hkg:wpaper:0805

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