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This paper studies the dynamic relationship between the parallel and official exchange rates of Chinese Yuan (CNY) to U.S. Dollar (USD). Motivated by recent evidence about Bitcoin as a major channel for capital flight from China, we construct a parallel exchange rate implied by Bitcoin prices in the Chinese and U.S. crypto exchanges. While the dual exchange rates are cointegrated, adjustment to long-run equilibrium is non-linear and depends on policy changes and state of the markets. Results from our Markov Switching Vector Error Correction model suggest the parallel exchange rate responds one-to-one in the long-run with respect to an official exchange rate innovation. However, an unexpected change in the parallel rate is countered by an opposite and state-dependent response in the official exchange rate, suggesting active exchange policy interventions by the Chinese monetary authority. [ABSTRACT FROM AUTHOR]

This paper empirically examines the role of USD, EUR, and CNY as international payment currencies in Korea, China, and Japan. Our survey of business people in those countries finds that higher convertibility and stability of these currencies in the SDR enhance their acceptability and usability for international payments. However, even during times of instability, USD remains highly accepted and usable as a trade payment currency unlike the cases of EUR and CNY. Therefore, maintaining exchange rate stability is essential for improving the acceptability and usability of EUR and CNY as international payment currencies. [ABSTRACT FROM AUTHOR]

The notion that the exchange rate affects exports is well understood. However, whether exporters respond to the expectations of the exchange rate is unknown. Hence, in this study, we construct a measure of exchange rate expectations based on news articles from the Factiva database. We use machine learning to identify and classify news articles about the appreciation of the renminbi (RMB, Chinese currency). Our empirical estimation shows that from 2000 to 2006, Chinese firms reduced their exports in response to a higher expectation of RMB appreciation. They switched their sales from export to domestic markets. The responses are larger in low‐productivity firms, state‐owned enterprises, processing trade, and final goods trade. [ABSTRACT FROM AUTHOR]

This study examines the role of the Chinese renminbi (RMB) as an international anchor currency. After China abandoned its tight US dollar (USD) peg in 2005, the RMB found greater popularity as a reserve currency. This change in the RMB's role reflected China's growing presence in the global economy, even challenging the USD in some of the 155 countries that signed on to the Belt and Road initiative (BRI). Modifying the approach of Ahmed (2021) to estimate basket weights in exchange rate policy for the currencies of 63 advanced and emerging economy currencies, we account for potential drivers of the exchange rate omitted in previous studies to obtain unbiased anchor weight estimates. Unlike earlier studies, we find that the RMB's anchor weight in exchange rate policies remains low irrespective of China's global role. Overall, the weight of the RMB averaged 6 %, compared to an average share of 58 % for the USD and 35 % for the euro. We also find that the USD, euro and yen anchor choices are strongly interlinked. A change in the anchor weight of any of these three currencies results in a strong opposite change in the weights of other two. Changes in RMB anchoring, however, do not materially impact USD, euro and yen weights. An increase in financial markets volatility leads developing countries to increase anchor weights of the developed countries currencies USD, euro and yen. Heightened geopolitical uncertainty only increases the weights of the USD and euro. [ABSTRACT FROM AUTHOR]

This study employs Bayesian vector autoregressive method to investigate spillover effects from China's monetary policy to Asian economies through the exchange rate, domestic demand, and financial channels. The domestic demand channel plays dominant role to the transmission of China's monetary spillover. While the weak impact of the exchange rate channel could be explained by the positive correlated response of Asian currencies to renminbi shock, the limited influence of the financial channel is due to low financial development and high restrictions on capital flows of China. We suggest Asian authorities should reduce the export reliance on China and prepare macro-prudential instruments to minimize their economies' vulnerability to foreign shocks. [ABSTRACT FROM AUTHOR]

This study examines the impact of exchange rate volatility on China-Pakistan trade flows from 1980 to 2020. Using data from 42 import industries and 34 export sectors, bilateral trade between China and Pakistan is analyzed, with the US as the third country. Cointegration analysis reveals a strong relationship between Pakistan-China trade flows and exchange rate volatility. The yuan/dollar exchange rate negatively affects 22 import and 24 export industries in Pakistan, while the rupee/dollar exchange rate negatively impacts 31 import and 17 export industries. Findings suggest that the exchange rate volatility of the third country hampers bilateral trade between Pakistan and China. [ABSTRACT FROM AUTHOR]

In recent years, China has introduced a series of trade and financial liberalization policies and taken a crucial step towards the internationalization of RMB. These new developments bring about one question: how has openness affected the RMB real exchange rate volatility? Our empirical results reveal that in the long term, both trade and financial openness reduce exchange rate volatility; in the short term, the effect of financial openness varies across the three financial sub-accounts. Financial development can magnify (mitigate) the impact of trade openness on volatility in the short (long) term, but its role in affecting the impact of financial openness depends on the financial sub-account involved. Economic policy uncertainty (EPU) weakens the impact of openness on exchange rate volatility. In addition, financial openness absorbs more external shocks than trade openness. Foreign exchange reserves, while offsetting financial crisis shocks, cannot adequately absorb current account balance shocks. [ABSTRACT FROM AUTHOR]

Extant research finds that exchange rate pegs do little to reduce firms' exposure to exchange rate risk in emerging markets. We study whether exchange rate risk exposures under a pegged/controlled floating currency regime can be priced in asset returns using unique data on exchange rate regime changes in China. As the only currency in the basket of International Monetary Fund's (IMF) Special Drawing Rights that is not fully market-driven for its exchange rate formation, the Chinese RMB (renminbi) offers an ideal case to study the pricing of exchange rate risk in pegged and controlled floating regimes. We find a negative stock market reaction to the announcement of changes from a pegged exchange rate to a controlled floating regime, suggesting a negative stock valuation effect of expectation of increased exchange rate exposure to currency appreciation. Under the managed floating exchange rate regime, the volatilities of accounting performance measures are significantly greater for the companies with stronger exposure to foreign-exchange rate risk. More importantly, foreign-exchange rate risk is priced in equity returns under the controlled floating regime but not under the strictly pegged regime. Furthermore, the pricing is stronger for firms with higher sensitivity to economic channels transmitting the exchange rate risk exposure to risk premiums. Overall, our results suggest that currency hedging for a multinational corporation with foreign-exchange exposure is warranted under a controlled floating currency regime. [ABSTRACT FROM AUTHOR]

Motivated by the theoretical link between real exchange rates and oil prices, we utilize a univariate moving average (MA) and an augmented MA (A-MA) model to generate multi-period forecasts of China's real effective exchange rate for 2008–2018. The MA model utilizes past information in real exchange rates, and the A-MA model utilizes past information in both real exchange rates and oil prices. We show that the A-MA forecasts are unbiased and embody useful predictive information beyond that contained in the MA forecasts. In addition, the A-MA forecasts are directionally accurate under asymmetric loss. Such accurate forecasts are useful as inputs for policymakers to design an optimal real exchange rate policy to promote trade and attract foreign investment, and for foreign entities that regard China as an attractive environment for investing in various sectors. [ABSTRACT FROM AUTHOR]

China is transitioning its industrial structure from labor-and resource-intensive industries that previously contributed significantly to the country's GDP growth to technology-intensive industries emphasizing a highly-skilled workforce and sustainability to achieve high-quality economic growth. This paper examines the impact of the RMB exchange rate on high-quality economic growth through theoretical modeling and empirical analysis and discusses the variable of overseas education to explore the mechanism of how the RMB exchange rate and overseas education jointly impact high-quality economic growth. The research sample includes the National Bureau of Statistics data on education from 1995 to 2015, the Bank for International Settlements (BIS) data on the RMB exchange rate, and the added value of China's high-quality economic growth estimated based on the national economy data. An empirical analysis of theoretical expectations was conducted, finding that RMB appreciation could make a positive contribution to China's high-quality economic growth; RMB exchange rate fluctuations would impact the relative cost of overseas education and overseas returnees could have a positive impact on domestic resource utilization efficiency and domestic capacity to make sci-tech innovations, thereby injecting vitality to high-quality economic growth. This study focuses on both the RMB exchange rate and the population studying abroad, providing additional observation dimensions to existing research. [ABSTRACT FROM AUTHOR]

The real bilateral exchange rate between Korean won and Chinese yuan is a crucial factor in balancing trade between Korea and China and has implications for both academics and policymakers. Prior research using symmetry hypotheses on bilateral trade and its heterogeneity among industries is limited. This study re‐examines the symmetric and asymmetric J‐curve phenomenon between them, employing the linear and nonlinear autoregressive distributed lag models. It considered the January 2008–June 2022 trade balance of 75 industries. This analysis shows support for the symmetric (asymmetric) J‐curve in 4 of 12 industries from the linear (nonlinear) model, accounting for 58.55% of the total trade between Korea and China. Furthermore, short‐ and long‐run asymmetries are detected in most industries, affirming the suitability of the nonlinear ARDL method. [ABSTRACT FROM AUTHOR]

Using the DCC‐GARCH model, this study considers distinctive features of China's foreign exchange market to investigate the impacts of RMB internationalization on exchange rates in onshore and offshore markets in different stages during 2010–2017. The results show that policies concerning RMB internationalization, such as interest rate liberalization, exchange rate liberalization, and capital market internationalization, have different impacts on the central parity rate, onshore exchange rate, and offshore exchange rate. In terms of exchange rate liberalization, as the daily trading band was gradually widened in 2012–2015, the onshore exchange rate followed the offshore exchange rate more closely. The central parity rate functioned as a managed floating role. It stabilized onshore and offshore exchange rate fluctuations, while allowing partial marketization. After the exchange rate reform on August 11, 2015, the central parity rate plays a benchmark role based on a more market‐oriented price formation mechanism. It makes the central parity rate regain pricing power in onshore and offshore markets. Further, it promotes exchange rate liberalization and RMB internationalization. Nevertheless, with the slowdown of China's economic growth and the narrowing of the interest rate differential between China and the US, the RMB is under pressure to depreciate, and its volatility increases significantly. [ABSTRACT FROM AUTHOR]

The Renminbi (RMB) exchange rate regime reform has gone through three stages roughly once every decade since 1994. It is a structural evolution through the unification of dual exchange rates, increased fluctuations and central parity rate reform in response to the dynamic macro environment in China and abroad. This paper unpacks leading and supporting reforms for each stage and reviews the effects. The reform has developed historical experience in adopting progressive strategies, avoiding sharp exchange rate fluctuations in the near term, maintaining appropriate capital controls, and guaranteeing the reform through domestic structural reforms. Achieving a free-floating exchange rate will be the ultimate goal, but it will not be made easily in the short run. During the transitional period, it is recommended that an annual target zone for RMB's effective exchange rate be arranged for the CFETS currency basket, along with necessary capital controls. [ABSTRACT FROM AUTHOR]

China's interaction with the international financial system is driven by its growing economic importance in the world. However, China's financial influence has been much under-presented compared with its economic power. This mismatch provides an opportunity for China to promote greater inclusiveness and better balance of power in global financial governance. The accelerated financial opening-up, exchange-rate flexibility, and deepened domestic reform also nourished the ambition of internationalization of the renminbi that would have impact on the global reserve currency system. This paper investigates the motivations behind China's engagements with the international financial system, the approaches China adopted to achieve its goals, and the key domestic policies required for China to gain more weight in the global financial market. [ABSTRACT FROM AUTHOR]

China has been promoting the internationalisation of the RMB for two decades. As a result, its offshore foreign exchange market has been substantially revitalised, despite that China's capital market remains partially open. The movements of offshore exchange rates can provide crucial clues to understanding the offshore market structure and the effects of interventions by Chinese monetary authorities. Using the GARCH-MIDAS model, this paper examines how the degree of openness and economic fundamentals – both observed and unobserved – affect the long-term volatility of offshore exchange rates. We find that, first, trade openness attenuates the long-term volatility, while financial openness has no effect. Specifically, the use of bilateral currency swap agreements and the relaxation of capital control are associated with lower volatility, while stock market connect programs tend to increase the volatility. Second, observed fundamentals, including relative measures for growth, interest rate, and money supply, have significant negative effects on offshore volatility. Third, although economic policy uncertainty and market risk affect long-term volatility, liquidity does not appear to be a culprit of volatility. In terms of FX interventions, direct intervention decreases the volatility, while oral intervention increases volatility. [ABSTRACT FROM AUTHOR]

Purpose: This paper aims to investigate asymmetric long-run effects of bilateral exchange rate on US trade imbalances with China and to examine if the effects are the same under China's fixed and managed floating exchange rate systems. Design/methodology/approach: The authors estimate both linear autoregressive distributed lag (ARDL) model assuming symmetric effect and nonlinear ARDL model assuming asymmetric effect of exchange rate on US trade deficit with China. The authors use data from 1994Q1 to 2005Q2 (under Chinese fixed exchange rate system), from 2005Q3 to 2021Q3 (under Chinese managed floating exchange rate regime), and from 1994Q1 to 2021Q3 (overall data). Findings: The Chow test indicates 2005Q3 is a structure break point. Further, the results suggest the effects of bilateral exchange rate on US trade deficit with China are not the same under different exchange rate systems. The asymmetric long-run effect of bilateral exchange rate does exist. The results also demonstrate the depreciation of Chinese currency will not significantly affect US trade imbalances with China. Research limitations/implications: Based on the results, the Chinese Government should embrace a more transparent and flexible exchange rate system. It will not significantly hurt Chinese trade balance, but it will help to reduce the tension between the USA and China. Originality/value: All previous literature (except two papers) related to the effect of Chinese exchange rate on US trade deficit with China assume the effect is symmetric, and all (except one) use data under different Chinese exchange rate systems. To the best of the authors' knowledge, this is the first paper that studies the possible asymmetric long-run effect of bilateral exchange rate under different Chinese exchange rate regimes. [ABSTRACT FROM AUTHOR]

Purpose: The experience of rising trade imbalance between Nigeria and its key trading partners in recent years motivated this study. Previous studies on this issue either ignored bilateral level or assumed that the effect of crude oil price and/or exchange rate changes on trade balance is symmetric. Consequently, this study investigates whether Nigeria's bilateral trade balance with Belgium, China, United Kingdom (UK) and USA is responding symmetrically or asymmetrically to changes in oil price and exchange rate. Design/methodology/approach: The authors used nonlinear autoregressive-distributed lag (NARDL) model that decomposed oil price and exchange rate into partial sum processes of positive and negative changes over the period 1999Q1–2019Q4. Findings: The study finds that the effects of oil price hike and plunge asymmetrically influence Nigeria's trade balance with the UK and USA. Further evidence indicated that oil price plunge exerts greater influence than price hike in all the cases, except the UK in the long run. Furthermore, Nigeria's trade balance responds asymmetrically and significantly to changes in exchange rate with China in the long run and with China and the UK in the short run. Specifically, the depreciation effect is more prominent than appreciation. Originality/value: Significant contributions to the existing literature in Nigeria include the recognition that the effects of oil price and exchange rate changes on trade are asymmetric and the disaggregation of trade into bilateral level to identify country-specific effect. [ABSTRACT FROM AUTHOR]

The trade war between the US and China affects the fluctuation of RMB exchange rate. We collect news on China–US trade policies and talks from January 2017 to July 2020. Results show that China–US dialogue and tariff imposition have the greatest impact on the percentage of RMB appreciation and depreciation. Additionally, tariff relaxation and increasing enterprise restrictions can cause a sharp appreciation and depreciation. "Policies" events and trade news from the US influence RMB fluctuations the most significantly. Finally, positive events cannot significantly cause RMB appreciation, but negative events can significantly cause RMB devaluation. [ABSTRACT FROM AUTHOR]

This paper investigates the efficacy of currency management as a policy tool to improve trade balance by analyzing the impact of the real exchange rate on the bilateral trade between the United States and China. The paper builds upon the existing literature and empirical analysis is carried out based on the J-curve hypothesis using quarterly data from 2000Q1 to 2021Q4. The vector-auto regression (VAR) model is estimated using China and the United States' trade balance, real exchange rate, and GDP. The impulse response functions provide evidence of the J-curve. A shock in Yuan (CNY)-US dollar real exchange rate leads to initial deterioration but improvement in the trade balance in favor of China over subsequent quarters. The results hold for various sub-periods of analysis, i.e., after the exchange rate was allowed to fluctuate since July 2005. Evidence supports that the policy of managing the real exchange rate might have yielded desired results for China. [ABSTRACT FROM AUTHOR]

This paper separates the exchange rate effect of monetary sterilization from the scale effect as a rationale for a modification of the measure of sterilization rate. The Chinese episode for 2002–2012 is characterized by a robust trend both for renminbi to appreciate vis-à-vis the dollar and for net official foreign assets to grow, which relates two of four scenarios that I generally identify for possible sterilization responses to changes in the exchange rate and official net foreign assets. I find that the modified sterilization rate in China exhibits a sort of strong "hawkish bias" in which sterilization is more sensitive to the exchange rate appreciation than to its depreciation, on one hand, and to the growth of net official foreign assets than to its decline, on the other. While there is no econometric evidence for the "hawkish bias" in the long run, the significant evidence exists for the short-run asymmetry of sterilization adjustment to be biased more toward the hawkish side than dovish side. [ABSTRACT FROM AUTHOR]

The paper studies the misalignment path of the RMB/US$ exchange rate, focusing on the managed floating period since July 2005 and determining the impact of the central bank's intervention on the RMB/US$ misalignment. We adopt the permanent-and-transitory component decomposition approach developed by Gonzalo and Granger (1995) to estimate the equilibrium RMB/US$ rate and its misalignment within a vector error correction model (VECM). The sample for our study is the quarterly data on the exchange rate and some fundamental variables for the US and China between the 1st quarter of 2000 and the 2nd quarter of 2020. The results show a trend of the RMB/US$ reducing its undervaluation during the sample period, going from 41% to 35%. The government intervention substantially increased the RMB undervaluation, from an average of 5% to 39% without accounting for the weak exogeneity of the intervention, but to 25.8% after accounting for the exogeneity. [ABSTRACT FROM AUTHOR]

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This paper investigates the impact of real exchange rate volatility and misalignment on exports and imports between China and the United States. Our empirical analysis used the quarterly time series data over the 1994Q:1–2019Q:4 period. We used the ARDL-bound testing approach for the short- and long-run relationship. The empirical results reveal that China's real exchange rate volatility and misalignment significantly impact China's real exports and imports over the sample period. In the short-run, the relationship between real exchange rate misalignments and China's exports is positive, whereas negative with imports from the United States. In the long run, the real exchange rate misalignment positively affects exports and negatively affects imports. The evidence suggests that both higher real exchange rate volatility and misalignment directly affect the relative price of goods and encourage China exports to United States. [ABSTRACT FROM AUTHOR]

This study adopts the New Keynesian theoretical model to analyse the heterogeneity spillover effect of U.S. permanent and temporary monetary policy shock on China's economy through an exchange rate channel. It also employs the Bayesian technique to estimate SVAR model and obtain two main results. First, the permanent increase in the nominal interest rate in the U.S. causes Chinese yuan appreciation and U.S. dollar depreciation, which has a negative spillover impact on China's economy and leads to the decline in China's real output. Second, the temporary increase in the nominal interest rate in the U. S. leads to Chinese yuan depreciation, which has a positive spillover impact on China' s macroeconomy and leads to the rise of China's real output. [ABSTRACT FROM AUTHOR]

The purposes are to predict exchange rate fluctuations more accurately and enhance Chinese enterprises' abilities to avoid exchange rate risks. Renminbi (RMB) exchange rate fluctuation's prediction methods are studied based on data mining technology. The auto-regressive integrated moving average (ARIMA) model is introduced first using a modeling method that combines linear and nonlinear models. The linear prediction is obtained by the ARIMA model's application in the RMB exchange rate's dynamic fluctuation analysis. The nonlinear residual prediction is obtained by integrating the ARIMA model with the convolutional neural network (CNN) algorithm. The RMB exchange rate fluctuations' influence mechanism on China's economic growth is explored by theoretical analysis and empirical research. The US dollar's daily central parity rate (USD) data against the RMB from September 2015 to March 2019 are selected for model verification, obtaining the exchange rate's logarithmic return sequence (RUSD). [ABSTRACT FROM AUTHOR]

This study examines the impact of changes in the Chinese exchange rate on Korean exports considering the characteristics of products exported. We use import data from OECD countries from 2002 to 2014 and find that Korea's exports of products having a greater competition further decline as renminbi depreciates. On the other hand, Korean exports of products having a greater complementarity degree with Chinese are more likely to increase as renminbi depreciates. In addition, the degree of negative impacts become smaller once Korean export products have a relatively higher quality than those of China. [ABSTRACT FROM AUTHOR]

Nearly all studies in the literature have assessed the impact of exchange rate changes on trade flows for goods. Service industries, however, have not received much attention. Two studies have assessed the effects of exchange rate changes on U.S. service trade with its partners. We add to this literature with a new study that assesses the symmetric and asymmetric effects of changes in the real effective rate of the yuan on China's trade in 11 service industries with the world. While we find short-run effects on imports and exports for almost all service categories, short-run effects last into long-run asymmetric effects in six Chinese importing service industries and eight Chinese exporting service industries. [ABSTRACT FROM AUTHOR]

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. [ABSTRACT FROM AUTHOR]

Following recent advances in asymmetric impact of exchange rate volatility on trade flows, we assess the symmetric and asymmetric effects of exchange rate volatility on China's bilateral trade with each of its 21 trading partners. We find symmetric effects in only a few bilateral trade models. However, the asymmetric analysis which required using nonlinear models revealed short-run asymmetric effects in almost all export and import demand models and log-run significant asymmetric effects in 50% of the models. In almost all models, while increased volatility was found to hurt Chinese trade, decreased volatility was found to boost them, implying that stable exchange rate is beneficial for China's trade. [ABSTRACT FROM AUTHOR]

This paper examines the causal relationship between the expectation of exchange rate and the Hong Kong H-share discount relative to China A-shares over the period 2006–2015, during which the Chinese currency transitioned from a pegged regime to a managed floating regime. Results show that the expected appreciation of the Chinese yuan leads to the decline in the H-share discount after controlling for the effect of different market sentiments and several other factors that explain the foreign share discount in the existing literature. Our results remain robust after adopting alternative model specifications. [ABSTRACT FROM AUTHOR]

Previous studies that assessed the impact of exchange rate volatility on Chinese trade flows reported mixed findings. They all have assumed that the effects are symmetric. In this paper, we investigate the possibility of asymmetric effects of the real yuan–dollar volatility on the trade flows of 84 2‐digit industries that trade between the two countries. We show that estimating asymmetric and nonlinear models for each industry yields much more significant outcomes than estimating symmetric and linear models. We find that trade flows of 2/3rd of industries are affected asymmetrically in the short run. Short‐run effects last into asymmetric adverse long‐run effects in 35 U.S. exporting industries (with export share of 45%) to China and in 44 Chinese exporting industries (with 76% export share) to the U.S. Since increased volatility hurts a significant share of both countries' exports, a stable yuan–dollar rate as well as inflation rate will benefit both countries in the long run. [ABSTRACT FROM AUTHOR]

The China-specific currency market framework of 'one currency, two markets' provides us with a unique natural experiment to investigate how the active offshore exchange rate frequently diverges from the onshore exchange rate. From an interdisciplinary perspective, we propose a methodological framework that first establishes four convexity–concavity indicators, and then employ time series clustering/segmentation techniques to explore the evolutionary patterns of the onshore and offshore Renminbi exchange rates from 2 May 2012 to 29 December 2017. The empirical results show that the methodology is able to recognize five scenarios in which the exchange rates behave in an unsupervised manner, arriving at a diagnosis of the evolutionary patterns for these two markets. The estimated inverse covariance matrices and the associated graphical representations highlight the assembled timestamps of clustering assignments and reveal time-invariant structures of the market state, with all the most relevant dependencies directly interconnected in these two markets. It also suggests that intervention operations should take into account investor attention, varying arbitrage opportunities for market participants in both markets. [ABSTRACT FROM AUTHOR]

Purpose: It has been increasingly recognized that exchange rate changes affect the cash flow and the value of firms. Existing studies on exchange rate exposure do not have much success in finding significant exposure, and the failure to find this relationship empirically has been termed "exposure puzzle". Motivated by the limited success in detecting significant exchange rate exposure in the extant literature, China's exchange rate regime reform in 2005, the increasing role of China's stock market played in the global financial market and its attractiveness in international portfolio diversification, the purpose of this paper is to resolve the so-called "exposure puzzle" and thus make a contribution to the literature by investigating whether the renminbi (RMB) exchange rate movements have any significant impact on China's stock market from the perspective of US investors who may want to diversify their portfolios with Chinese stocks. Design/methodology/approach: Since previous studies which rely heavily on the standard Ordinary Least Squares (OLS) or seemingly unrelated regression (SUR) method of estimation with the assumption of constant variance of firm's or industry's returns do not have much success in detecting significant exchange rate exposure, in this study, we apply an asymmetric GARCH(1,1) with generalized error distribution (GED) model which takes conditional heteroscedasticity and leptokurtosis of asset returns into account in the estimation of first- and second-moment exchange rate exposure. Findings: Using weekly data over the period August 10, 2005–January 1, 2020 on 40 Chinese sector stock returns, the authors find strong evidence of first-moment exchange rate exposure. In particular, 65% (26 out of 40) of sectors examined have significant first-moment exposures and 73.08% (19 out of 26) of these significant first-moment exposures are asymmetric. For the second-moment exchange rate exposures, they are less frequently detected with 20% (8 out of 40) significant cases. These results are robust to whether an unorthogonalized or orthogonalized bilateral US dollar (USD)/Chinese Yuan (CNY) exchange rate is used in the estimation. Research limitations/implications: Because this study concerns only with whether exchange rate movements affect ex post returns as opposed to expected (ex ante) returns, and given the significant exposures with respect to different risk factors found in the study, it is interesting to see if any of these risk factors commands a risk premium. In other words, a natural extension of this study is to test whether any of these risk factors is priced in China's stock market. Practical implications: The findings of the study have interesting implications for US investors who would like to diversify their portfolios with Chinese stocks and are concerned about whether the unexpected movements in CNY will affect their portfolio returns in addition to its local and world market risk exposures. Originality/value: The study extends previous research on the first- and second-moment exchange rate exposure of Chinese stock returns by utilizing an asymmetric GARCH(1,1) with generalized error distribution (GED) model, which has not been fully exploited in the literature. [ABSTRACT FROM AUTHOR]

Our goal in this paper is to assess short-run and long-run effects of the real yuan-pound rate volatility on the U.K. exports to China and Chinese exports to the U.K. When a linear export model was estimated for each of the 70 industries, we found short-run effects on 43 (53) British (Chinese) exporting industries to China (the U.K.) and which lasted into the long run in 17 (28) British (Chinese) industries. However, when a nonlinear model was estimated, we found short-run asymmetric effects on 58 (67) British (Chinese) exporting industries that lasted into the long in 42 (52) British (Chinese) industries, mostly in an asymmetric manner. Our findings were industry specific but in general, while increased exchange rate volatility hurt British export to China in most industries, it actually boosted Chinese exports to the U.K., in most industries. On the other hand, decreased volatility boosted exports of some British industries, but it hurt exports of some Chinese exporting industries. [ABSTRACT FROM AUTHOR]

The paper presents a quantitative study on the bilateral exchange-rate volatility of Chinese and Pakistani currencies by considering their bilateral trade. For the impact assessment, trade data of major industries were considered, and the "Ng- Perron" unit root test has been employed. The Unit root tested the stationarity of the exports and imports for both partners, and the outcome implied the use of the error correction method. Moreover, the Johansen co-integration technique has also been applied to confirm the existence of co-integration. We found evidence that variability in the exchange rate has a mixed impact on a few exporting and importing commodities both in the long-run and in the short-run, however, only a few commodities were impacted negatively. Thus, policymakers of both countries can consider Yuan as a medium of exchange while trading. [ABSTRACT FROM AUTHOR]

We analyze the return and volatility connectedness between the three Chinese exchange rate markets, namely, the onshore market, the offshore market, and the nondeliverable forward offshore market. Our results show that connectedness exhibits an increasing trend with fluctuations during periods of internal reforms and external shocks. For example, the connectedness increased with China's exchange rate reform on August 11, 2015 but dropped after that. Furthermore, we document that the offshore spot and a forward market dominated the other rates in return spillovers. In contrast, both the offshore and onshore forward rates dominated the other rates in volatility spillovers. [ABSTRACT FROM AUTHOR]

This paper investigates the degree of connectedness of Asia Pacific forex markets post‐global financial crisis and relates it to developments in the renminbi markets. The connectedness measure developed by Diebold and Yilmaz (2014) (Journal of Econometrics, 182, 119–134) reveal the strength of linkages across the U.S. dollar currency pairs of 12 currencies, namely offshore renminbi, onshore renminbi, euro, yen, Australian dollar, Indian rupee, Korean won, Malaysian ringgit, New Zealand dollar, Singapore dollar, Thai baht and Taiwan dollar. With the gradual liberalization of China's exchange rate system, shocks from the renminbi markets contribute more to fluctuations in almost all individual Asia Pacific currency markets vis‐à‐vis the yen. Rolling regressions show a number of Asia Pacific currencies exhibit tighter association with the renminbi when the latter underwent exchange rate regime reform. Finally, results from a two‐step analysis involving a panel regression provide evidence that time‐varying sensitivities of Asia Pacific currencies to the renminbi are directly related to the countries' trade and financial links with China. [ABSTRACT FROM AUTHOR]

Keeping in view the idea of the third-country effect by Cushman, the analysis attempts to capture the asymmetric impact of third-country exchange rate volatility on Pakistan–China commodity trade. The empirical analysis is based on the annual data for 14 industries that export from Pakistan to China and 34 industries that import to Pakistan from China. The findings of the study confirm that nonlinear models generate more significant results both in the short and long runs. Moreover, the empirical findings suggest that the asymmetric assumption alone is not enough, and instead, we should use it along with the third economy effect. [ABSTRACT FROM AUTHOR]

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. [ABSTRACT FROM AUTHOR]

This paper intended to employ a portfolio approach to assess the effect of exchange rate expectation on Chinese RMB internationalization and empirically test the interactive effects among short-term capital flows, RMB appreciation expectation and the internationalization process using a VAR model with monthly data ranging from February 2004 to December 2020. The results suggest that RMB exchange rate appreciation could lead to an increase in the foreign demand for RMB and RMB denominated assets, while RMB internationalization would attract more short-term capital inflow due to the reduced transaction costs. The empirical evidence from the VAR model estimation confirms the finding that expected RMB appreciation induces short-term capital inflow and promotes RMB internationalization. The robustness checks confirm the evidence. The results have important policy implication for RMB internationalization and for maintaining a sound and stable financial system. [ABSTRACT FROM AUTHOR]

Mundell's trilemma theory says that capital flow, exchange rate stability, and monetary policy autonomy cannot be achieved simultaneously. Using monthly data from the People's Bank of China from 1999 to 2019, we find that the trilemma theory is not nearly as tight in China's practice as in theory, and the central bank can internally offset the effect of exchange rate volatility by ways other than the monetary base (such as central bank securities). Our results also indicate that, before 2012, monetary policy autonomy in China was weak due to the problem of 'funds outstanding for foreign exchange'. With the reform of the Renminbi (RMB) exchange rate system in 2005, the effectiveness of central bank securities in compensating for the flow of foreign exchange reserves has gradually been strengthened in China. [ABSTRACT FROM AUTHOR]

The U.S.–China trade imbalance is commonly attributed to a Chinese policy of currency manipulation. However, empirical studies failed to reach consensus on the RMB misalignment. We argue that this is not a consequence of poor measurement but of theory. At the most abstract level the conventional principle of comparative cost advantage suggests real exchange rates will adjust so as to balance trade. Therefore, the persistence of trade imbalances tends to be interpreted as arising from currency manipulation facilitated by foreign exchange interventions. By way of contrast, the absolute cost theory explains trade imbalances as the outcome of free trade among nations that have unequal real costs. We argue that a disparity in real costs is the root cause of the U.S.–China trade imbalance. [ABSTRACT FROM AUTHOR]

With the RMB becoming the fifth international payment currency and its inclusion in the SDR currency basket, coupled with the opening of China's capital market, RMB-related exchange rates have attracted increasing attention because of China's RMB internationalization strategy. Using the DCC-GARCH model, we investigate how domestic (China) and international (USA, EU, UK, and Japan) policies and situations, including RMB internationalization, U.S. QE, European Debt Crisis, Brexit, and Abenomics, influence co-movement of the USD/CNY and SDR/CNY exchange rates from 2010 to 2017. We analyze the co-movement and provide explicit explanations for distinct areas (unrelated, long-term negative, and abruptly positive co-movement areas). Further, we find that RMB-related exchange rates remain largely influenced by domestic policies, while because of China's opening-up policies they are also influenced by the international situations. Both US and EU policies exert a remarkable influence, but the effects of UK and Japan policies are decreasing. [ABSTRACT FROM AUTHOR]

This article investigates the linkages of the movements in Renminbi (RMB) to volatility of exchange rate returns of other currencies before and after the yuan devaluation on 11 August 2015. A comparison between the onshore Chinese yuan (CNY) and the offshore Chinese yuan (CNH) is made. Standard regression methods underestimate the tail dependence between yuan and other exchange rate volatility, as financial data are non-normally distributed, especially when extreme event occurs. We apply Gumbel copulas to capture the presence of tail dependence between RMB returns and the volatility of exchange rate returns for 13 selected currencies, and found dependencies not revealed by the standard ARCH models. The tail dependence has increased after the RMB devaluation, suggesting that RMB depreciation is associated with higher downside risks in these currencies. This is most obvious in the currencies of Asian and ASEAN-5 countries that have strong trade and financial linkages with China. The dependence structure has shifted away from the dominance of onshore CNY rates before the devaluation to the growing importance of more volatile offshore CNH rates after the devaluation. Hence, any large depreciation in CNH will lead to a higher volatility in the other exchange rate returns, and the corresponding downside currency risks are higher than those of the CNY. [ABSTRACT FROM AUTHOR]

In this paper, we examine the price elasticity of China's aggregate imports and then provide further details on this elasticity in partner countries according to their participation in two alternative trading arrangements (TPP vs RCEP) and their level of development. By using different types of data and appropriate methodologies to conduct our analysis at both global and bilateral levels, we observe that the price elasticity of China's imports is negative, which is consistent with the most recent studies and challenges the conventional wisdom. One hypothesis that might explain this result is the suppliers' patterns of trade. Since export diversification by trading partners can affect the sensitivity of Chinese imports to relative price movements, we endogenise the import price elasticity accordingly. We find that negative elasticities are more prominent when China's trading partners are developing countries, and when we consider their diversification in export markets. On the whole, the more partner countries are diversified in their export destinations, the lower the import price elasticity is in absolute terms. We conclude that export diversification by partner countries allows China to increase her 'resilience' to movements in its exchange rate. The same tests are performed in the case of the US for comparison. [ABSTRACT FROM AUTHOR]

China's exports of manufactured goods to African countries, stimulated by a real appreciation of several African currencies vis-à-vis the renminbi, have grown especially rapidly. This did not however prevent African countries from a higher growth rate of manufacturing value added than the precedent period during which China's exports to African countries were very low. We estimated a manufacturing function by using a panel data of 44 African countries over the period from 2000 to 2015, GMM estimator and an original set of real exchanges rates. We find positive and specific impact of the real exchange rate- appreciation of African countries relative to China on African manufacturing and attribute this positive effect to the improvement of productivity efficiency. However, this favourable effect disappears with too strong appreciations. These results have clear political implication, as it does not speak in favor of systematic depreciations of African currencies. [ABSTRACT FROM AUTHOR]