The relationship between exchange rate and macroeconomic variables in China

• Main Author: Chi Wei Su
• Format: Article
• Language: deu
• Published: Faculty of Economics University of Rijeka 2012-06-01
• Series: Zbornik radova Ekonomskog fakulteta u Rijeci : časopis za ekonomsku teoriju i praksu
• Subjects: RMB exchange rate; nonlinear rank test; threshold error correction
• Online Access: http://www.efri.hr/sites/efri.hr/files/cr-collections/2/06-chi-wei-su-2012-1-1350651965.pdf

The objective of this study is to provide evidences on the relationship betweenRenminbi (RMB) exchange rate and macroeconomic variables in China, as well asguidelines for reform of RMB exchange rate regime. The long-run equilibriumrelationship between RMB exchange rate and macroeconomic variables of Chinais examined by applying the non-parametric rank tests proposed by Breitung.Furthermore, this study uses the threshold error-correction model (TECM) todetect the nonlinear casual relationship between RMB exchange rate andmacroeconomic variables that are nonlinear forms. The results show that RMBexchange rate and macroeconomic variables have nonlinear relationship witheach other. In the long run, these results demonstrate solid evidence that RMBexchange rate and macroeconomic variables support the hypothesis of anasymmetrical error-correction process in China. Our results have important policyimplications for Chinese government under study.