RMB Exchange Rate Reform Research Articles

Estimating the effect of international crude oil prices on RMB exchange rate with two-way fluctuation spillover.

International crude oil prices has become one of the important factors that affect exchange rate fluctuation. By combining TVP-VAR model and DY time-varying spillover index, this paper measures the two-way fluctuation spillover effect between international crude oil prices and RMB exchange rate from 2011 to 2022. The research results show that: (1) There are obvious time-varying characteristics among international crude oil prices, onshore RMB exchange rate and offshore RMB exchange rate, and they are strengthened when major events occur at home and abroad; (2) The spillover and absorption level among international crude oil prices, onshore RMB exchange rate and offshore RMB exchange rate is relatively limited; (3) After the "exchange rate reform on August 11", the market participation of RMB exchange rate has increased year by year, and the offshore RMB is mainly net spillover, while the onshore RMB is mainly reflected as a recipient; (4) The offshore RMB exchange rate has a driving effect on the onshore RMB exchange rate. Based on this, it is necessary to orderly promote the development and utilization of new energy, actively promote the market-oriented reform of RMB exchange rate, play the leading role of offshore market, and accelerate the construction of crude oil-RMB settlement system.

Mood Beta, Sentiment and Stock Returns in China

We examine the cross-sectional seasonality of stock excess returns in China. We find that stocks’ historical excess returns are positively related to their future excess returns under a congruent-mood period and negatively associated with their future excess returns under a noncongruent-mood period. Besides, stocks with larger mood beta tend to outperform during mood periods, and this impact is still significant after differentiating companies. Moreover, consistent with our hypotheses, mood beta has stronger explanatory power after China’s unique Split-Share Structure Reform and RMB Exchange Rate Reform. Finally, mood beta has stronger explanatory power compared to sentiment beta during ascending and descending mood months.

Time-varying Effects of U.S. Economic Policy Uncertainty on Exchange Rate Return and Volatility in China

ABSTRACT We examine the mean and volatility spillover effects of U.S. economic policy uncertainty (EPU) on the RMB exchange rate return and the effects’ time-varying features corresponding to the 2015 “8.11” RMB exchange rate reform and the Sino–U.S. trade friction. We find that rising U.S. EPU amplifies the RMB exchange rate return’s volatility at the volatility spillover level while driving the RMB’s appreciation against the USD at the mean spillover level. After the reform’s implementation, the U.S. EPU’s mean spillover on the RMB exchange rate return disappears, while the volatility spillover increases and is further enhanced by trade friction.

Exploring the role of green innovation and investment in energy for environmental quality: An empirical appraisal from provincial data of China

To better analyze China's carbon neutrality target, this study investigates the effect of green innovation and investment in the energy industry on China's provincial and regional data from 1995 to 2017. Using Westerlund and Edgerton's panel cointegration test, the authors found a stable long-run relationship between CO2 emissions and its determinants. We found that under major structural breaks at the local, regional, and global levels, such as the East Asian crises of 1997, the financial crises of 2007–2008, China's RMB exchange rate reform announced on August 11, 2015, and mild recession in 2001, CO2 emissions, income, green innovation, renewable energy use, and energy industry investment are cointegrated. The environmental Kuznets curve hypothesis is valid. In the long run, income, environmental innovation, investment in the energy industry, and renewable energy consumption are key contributors in explaining CO2 emissions. The empirical evidence from augmented mean group (AMG) is consistent with the estimates of CS-ARDL. Concerning practical implications, the findings suggest that there is a need to switch the Chinese economy to more sustainable sources of energy, a viable solution to abate environmental degradation. China should introduce and shift investments to green innovation.

Dynamic linkage between the Chinese and global stock markets: A normal mixture approach

The paper provides an empirical framework for analyzing the dynamic linkage between Chinese and thirty major stock markets globally. In doing so, we employ the bivariate normal mixture model, a weighted average of two normal distributions that can reveal both the degree and structure of dependence between markets. We show that the level of dependence strengthened since 2004 in general, whereas the contagion effects spread heterogeneously during the global financial crisis. We also examine potential factors that affect the stability of the linkage by capturing regime switching behavior. The results suggest that business cycle synchrony plays a significant role in increasing the instability of dependence between the Chinese and global stock markets, while the impact of asynchrony is negligible. Additionally, we observe increased dependence and unstable structure, associated with the implementation of China's capital market liberalization policies and RMB exchange rate reform.

Research on RMB Exchange Rate Volatility Risk Based on MSGARCH-VaR Model

This paper captures the RMB exchange rate volatility using the Markov-switching GARCH (MSGARCH) models and traditional single-regime GARCH models. Through the Markov Chain Monte Carlo (MCMC) method, the model parameters are estimated to study the volatility dynamics of the RMB exchange rate. Furthermore, we compare the MSGARCH models to the single-regime GARCH specifications in terms of Value-at-Risk (VaR) prediction accuracy. According to the Deviance information criterion method, the research shows that MSGARCH models outperform the single-regime specifications in capturing the complexity of RMB exchange rate volatility. After the RMB exchange rate reform in 2015, the volatility is more asymmetric and persistent, and the probability of being in the turbulent volatility regime is significantly increased. The continuous escalation of Sino-US trade friction has increased the VaR of RMB exchange rate log-returns. From the evaluation results of the actual over expected exceedance ratio (AE), the conditional coverage (CC) test, and the dynamic quantile (DQ) test, we find strong evidence that two-regime MSGARCH models could forecast VaR more accurately, which provides practical value for China’s foreign exchange management authorities to manage the financial risk.

RMB currency risk management after China’s ‘8.11’ exchange rate reform

ABSTRACT After ‘8.11’ RMB exchange rate reform in 2015 in China, RMB experienced two phases of irrational and pro-cyclical depreciation. The currency risk management of China’s central bank shifted from quantitative management to price management step by step. The article analyzes the efficiency of China’s central bank’ management, and finds that the management improved the imbalance between supply and demand and reduced irrational and procyclical expectation on RMB exchange rate.

Exchange rate appreciation, R&D, and export sophistication: Evidence from China

ABSTRACTBased on panel data of 26 manufacturing industries in China from 2000 to 2010, this paper investigates the impact of exchange rate changes on export sophistication. Utilizing a fixed-effects model, we found that prior to the RMB exchange rate reform in 2005, the RMB exchange rate was significantly negatively correlated with export complexity, while it was significantly positively correlated with export complexity after the exchange rate reform. The appreciation of the RMB brought about by the implementation of the reform policy has significantly improved the sophistication of China’s exports. It was also determined that the appreciation of the RMB significantly augmented the sophistication of China’s exports by promoting R&D investment.

The effects of exchange rate regime reform on RMB markets: A new perspective based on MF-DCCA

Based on the RMB exchange rate regime reform launched by People’s Bank of China (PBoC) on Aug 11, 2015, we investigate the effects of this reform on the cross-correlations among CNH, NDF and CNY markets using multifractal detrended cross-correlation analysis (MF-DCCA) method. The empirical results show that cross-correlations among CNH, NDF and CNY markets are multifractal. Moreover, we find that this RMB exchange rate reform takes effects, as the persistence and the degree of multifractality of the cross-correlation between these series are weaker after the reform. Furthermore, we find that, after the reform, the persistent cross-correlation for CNH and CNY markets is stronger in the short term but weaker in the long term. While for NDF and CNY markets, the anti-persistent cross-correlation in the short term turn into persistent and persistent cross-correlation in the long term are stronger after the “8.11” RMB exchange rate regime reform. Finally, we find that the fat-tailed distribution is the main source of multifractality for NDF-CNY return series pair after the reform, while for CNH-CNY return series pair, the main source is still long-range correlation.

The Resumption of China’s Exchange Rate Reform and the Internationalization of RMB between 2010 and 2013

The article analyzes the resumption of China’s exchange rate reform from June 2010. It finds that, while the Congress’s influence on the RMB issue generally diminished over time after the global financial crisis, international criticism and pressure from the US administration and the IMF still played an important role of agenda-setting in China’s exchange rate policy-making in 2010. The Chinese leadership stood firm to the external pressure and demonstrated solidarity and consistency towards the exchange rate policy. It argues that, with the development of RMB internationalization and increasing capital account openness, a flexible exchange rate was the feasible choice to preserve the independence and effectiveness of China’s monetary policy, which produced the Chinese leadership’s consensus on the RMB exchange rate reform in 2010. The RMB appreciated steadily and gradually against the dollar in the second round of exchange rate reform, aiming to improve confidence and promote the international use of RMB.

Integration Test of HK dollar and RMB and Its Interest Rate Linkages An Empirical Study Based on Structural Change

Taking into account the possibility of structural changes led by RMB exchange rate reform, the paper tests the data of interest rate relationship between Hong Kong and Mainland China and U.S. from July 1996 to October 2009, and finds that there is different data structure before and after the July 2005 reform of the RMB exchange rate. So, in this paper, UIP-PPP-RIP model is used for testing empirically the monetary integration between Hong Kong and Mainland before and after the exchange rate reform, and it is concluded that: before the exchange rate reform the parity existed between Hong Kong and Mainland in the financial market, commodity market and real capital market, then after the exchange reform the parity disappeared. In addition, dynamics analysis of the long and short term interest rate relationship between the three locations shows that: U.S. interest rate change effect on Hong Kong interest rate is larger than Mainland interest rate change effect on Hong Kong interest rate, but this effect after the exchange rate reform became smaller. The policy significance is that monetary integration does not in appear Hong Kong and Mainland after the exchange rate reform, but the RMB interest rate impact on the Hong Kong dollar interest rate is gradually increased.

Obituary: Zhang Jikang (1959–2006)

Obituary: Zhang Jikang (1959–2006) Lu Ding Professor of Economics, Sophia University, Tokyo and member of CIJ Executive Committee Born in 1959, the first year of the 3-year famine associated with Mao's ill-fated Great Leap Forward, Professor Zhang Jikang began his academic career in China's prestigious Fudan University, Shanghai after obtaining a Masters degree in economics there in 1988. When he was still writing his PhD dissertation, he was promoted to Associate Professor in 1996. Three years after he was awarded the doctorate, he became a Full Professor in 2002. His promotion was well deserved. Between1992 and 2002, Zhang wrote ten books and published in academic journals and volumes at a rate of 8–10 articles per year. Meanwhile, he edited six books and translated an economics textbook from English into Chinese. Most of his research was related to foreign investment, international capital flows and banking-financial sector regulation. In recent years, using government research grants, he wrote on RMB exchange rate reform, making important contributions to Chinese public policy. Like other successful academics of his age in China today, Zhang was overloaded with heavy teaching and administrative duties. From 1996 onwards, he supervised over 70 Master-degree students and two PhDs, on top of introducing five new courses in financial economics. His main administrative duties at Fudan included Directorship of the Centre for European Studies and Deputy Directorship of two other Centres. Beyond academia, Zhang actively provided consulting services to governmental and business institutions. His non-academic attachments included Senior Adviser to the China Foreign Exchange Trade System and National Inter-bank Funding Centre, Vice Chairman of the Senior Advisory Commission for the Huaiyin City Bank, Senior Adviser to the Bank of Shanghai and Executive Standing Member of the Shanghai Centre for International Finance Studies. Zhang conducted these services whilst serving as a team-leader for 19 funded projects since 1997. Zhang spent one year, 1995/96, at St. Antony College, Oxford, as a Visiting Scholar. This proved to be very important in the development of his academic career. He subsequently visited and lectured in several universities around the world, including Glasgow Caledonia University (UK), University of Lille and SciencesPo Lille (France), International University (Japan), Lund University (Sweden), to name a few. He was a Visiting Research Fellow at the East Asian Institute in 2001 and 2004. Even after he was diagnosed with cirrhosis at the end of 2004, Zhang risked his health by continuing with his busy agenda. He strove to maintain the momentum of his work despite Fudan's relieving him of all his duties. The energetic scholar finally collapsed on 18 February 2006 during a trip to Britain. His sudden departure is a great loss to his colleagues and friends. They will remember him as an articulate and well-trained economist, always ready to cooperate with and help others.