Abstract
ABSTRACTA controversy has been triggered by the Chinese exchange rate regime shift from a single currency peg to an alleged basket peg. The controversy is about the specification of the model used to represent the basket as three models have been used: levels, log levels and first log differences. It is suggested that one way to confirm the validity or otherwise of a model is to use data on the special drawing rights exchange rate since the currency weights are known. The results show that the estimated weights are almost identical no matter which model and which numeraire is used. However, nonnested model selection criteria show that the best model is that written in levels, simply because this is what is used in practice by central banks adopting basket pegs.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
