Foreign Exchange Market Pressure and Monetary Policy: An Empirical Study Based on China’s Data

L. Liu and Y.j Ni

MPRA Paper from University Library of Munich, Germany

Abstract: The reform of exchange rate system in 2005 has settled down the floating exchange rate system with management in China. Until August this year, RMB/USD has appreciated about 16.65%. This paper measures the exchange market pressure (EMP) on RMB/USD, and use VAR model to analyze the relationship between EMP and domestic monetary policy . And from the results we find that the increase of China’s domestic interest rate of is the main cause of RMB pressure of appreciation, but the foreign interest rate has little effects on the pressure and it can affect the growth rate of China’s domestic credit. So,we deem that the theory of "ternary paradox" may not applicable to China, at least in the period of our investigation.

Keywords: EMP; Monetary; Policy; Foreign; Exchange; Intervention; VAR; Model (search for similar items in EconPapers)
JEL-codes: C22 C32 E50 F31 (search for similar items in EconPapers)
Date: 2009-01-10
New Economics Papers: this item is included in nep-ifn, nep-mon and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:14491

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