Exchange Rate Flexibility in China: Measurement, Regime Shifts and Driving Forces of Change

Dixon, R.; Zhang, Z.; Dai, Y.

Abstract

With an emphasis on government intervention that hinders market forces in currency movements, this paper presents a nuanced investigation of the degree and dynamics of flexibility in China's exchange rate regime. A high-frequency data model is developed to more accurately detect the extent to which the Chinese currency is market-driven. This indicator is then utilized in a Markov switching model to examine shifts in RMB regime flexibility. The results suggest a moderate increase in exchange rate flexibility since the 2005 reform. Additionally, two switching states are captured, and possible driving factors are discussed.

Citation

Dixon, R., Zhang, Z., & Dai, Y. (2016). Exchange Rate Flexibility in China: Measurement, Regime Shifts and Driving Forces of Change. Review of International Economics, 24(5), 875-892. https://doi.org/10.1111/roie.12226

• Journal Article Type: Article
• Acceptance Date: Feb 22, 2016
• Online Publication Date: Apr 19, 2016
• Publication Date: Nov 1, 2016
• Deposit Date: Feb 24, 2016
• Publicly Available Date: Apr 19, 2018
• Journal: Review of International Economics
• Print ISSN: 0965-7576
• Electronic ISSN: 1467-9396
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 24
• Issue: 5
• Pages: 875-892
• DOI: https://doi.org/10.1111/roie.12226
• Public URL: https://durham-repository.worktribe.com/output/1387856