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Do External Political Pressures Affect the Renminbi Exchange Rate?

Author

Listed:
  • Li-gang Liu

    (Research Department, Hong Kong Monetary Authority)

  • Laurent Pauwels

    (Research Department, Hong Kong Monetary Authority)

  • Jun-yu Chan

    (Research Department, 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.

Suggested Citation

  • Li-gang Liu & Laurent Pauwels & Jun-yu Chan, 2008. "Do External Political Pressures Affect the Renminbi Exchange Rate?," Working Papers 0805, Hong Kong Monetary Authority.
    • Handle: RePEc:hkg:wpaper:0805
    as

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    File URL: http://www.info.gov.hk/hkma/eng/research/working/pdf/HKMAWP08_05_full.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Renminbi exchange rate; Conditional volatility; Event studies; Macroeconomic news or surprises;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

    NEP fields

    This paper has been announced in the following NEP Reports:

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