U.S. monetary policy and China's exchange rate policy during the great recession

Tervala, Juha

doi:10.1002/ijfe.1652

Cited by 11 publications

(3 citation statements)

References 63 publications

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“…Similarly, the dynamics of output and inflation as explained by the traditional Phillips curve were altered at that time (Huang & Luo, 2018). The depreciation of the U.S. dollar has brought consequences for financial imbalances in other countries (Rajan, 2011;Tervala, 2019…”

Section: Methodsmentioning

confidence: 99%

Macroeconomic performance of countries across monetary policy regimes from 2000 to 2017

Ryczkowski

Ręklewski

2020

Economic Research-Ekonomska Istraživanja

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The goal of the article is to compare macroeconomic performance of 27 advanced and emerging OECD countries through the lens of their monetary policy frameworks. We find no advantage of the euro area countries and countries whose central banks follow a dual mandate in inflation and output stabilisation as compared to full-fledged inflation targeters including strongly inflationaverse central banks. The study contributes to the unresolved discussion on optimal monetary policy after the Great Recession. The novelty relies on employing a synthetic median-based measure adjusted for initial macroeconomic conditions. The failure to account for the initial conditions leads to underestimation of performance of countries with an originally unfavourable economic situation. We verify the results with panel data models using macroeconomic variables of key importance for monetary policy after the Great Recession. Overall, the study suggests that assigning a special role to money or output in a monetary policy strategy is not required for successful macroeconomic performance.

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Section: Methodsmentioning

confidence: 99%

Macroeconomic performance of countries across monetary policy regimes from 2000 to 2017

Ryczkowski

Ręklewski

2020

Economic Research-Ekonomska Istraživanja

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“…Second, the U.S. dollar has strong spillover effects due to its utilization as an invoice currency in global transactions. China's exchange rate mechanism is extremely susceptible to variations in the U.S. and the peg to the dollar is also a pillar of Chinese monetary policy (Tervala, 2019). The fluctuation of the USDCNY against the dollar has always been www.scholink.org/ojs/index.php/jepf one of the hot issues of concern for related scholars (Funke & Gronwald, 2008).…”

Section: Introductionmentioning

confidence: 99%

The Co-volatility of Uncertainty Shock on Chinese Exchange Rate: Based on Time-frequency Domain and Time-varying Method

Guan

2024

JEPF

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In recent years, with the global epidemic, the Russia-Ukraine conflict, the great power game, and so on events, the international political and economic environment has become more and more unstable, the USDCNY exchange rate fluctuates significantly, and the external uncertainty risk shocks negatively hit the foreign exchange market. Based on this, this article expands global uncertainty risk shocks into four dimensions: global geopolitical risk, U.S. economic policy uncertainty, Chinese economic policy uncertainty, and VIX index, in addition to adding international WTI crude oil and gold price as additional variables, which are significantly correlated with both, to study the linkage among uncertainty shocks, commodity volatility and USDCNY exchange rate from the time-frequency domain. Furthermore, we analyze the time-varying spillover effects among variables at different frequency scales by decomposing the data into multiple scales using the Maximum Overlap Discrete Wavelet Transform (MODWT). Findings reveal that uncertainty factors and commodity prices exert distinct influence mechanisms on the USDCNY exchange rate under different cycles of frequency fluctuations. At various time-frequency domain volatility scales, VIX and WTI generate significant risk spillovers over the USDCNY exchange rate. Moreover, when global major events occur, time-varying spillover effects of variables are also heterogeneous. The research findings presented in this paper can provide valuable insights for policymakers and investors regarding the impact of international uncertainty shocks on the Chinese exchange rate across various short, medium, and long frequencies. This understanding can aid in managing uncertainty risks in decision-making processes, ultimately facilitating the efficient functioning of the foreign exchange market.

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“…Additionally, as the largest member holding dollar assets, China has been witnessed as a dollar-pegged country for a long time (Tervala, 2019), even though moving toward a more flexible exchange rate regime after the reform initiated in July 2005. Moreover, trading of the renminbi against the U.S. dollar dominates China’s onshore spot FX market, accounting for more than 95% of the overall FX transactions on average.…”

Section: Introductionmentioning

confidence: 99%

Economic Uncertainty and Exchange Market Pressure: Evidence From China

Lin

2022

SAGE Open

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This paper evaluates the impact of local and external economic uncertainty shocks on China’s exchange market pressure from a time-varying perspective. We first construct a simple behavioral model to provide some economic background for our empirical analysis. The model identifies two channels, namely market sentiment and market demand, through which economic uncertainty has a time-varying impact on exchange market pressure. Notably, we calculate a new exchange market pressure index for China by considering China’s practice. Using the economic policy uncertainty index as a proxy for economic uncertainty and our new estimates of China’s exchange market pressure, we employ a novel TVP-VAR model controlling for over-parameterization to a monthly dataset from January 2001 to October 2020 to analyze the impact of China’s and U.S. economic policy uncertainties on China’s exchange market pressure. Our empirical findings robustly show that an upsurge in U.S. EPU is followed by appreciation pressure of the RMB against the dollar, while a hike in China’s EPU triggers devaluation pressure on the RMB. In addition, the impact of economic policy uncertainty has considerable time variation in magnitude, especially after mid-2011, showing a trade-off mechanism between the effects of domestic and foreign economic uncertainties on China’s exchange market pressure. Moreover, we attribute the time-varying features to the changes in China’s dependence on the U.S. and in the exchange rate flexibility. Finally, China should further improve the exchange rate flexibility, reduce its dependence on the U.S. and develop a more diversified currency basket in the exchange rate formation mechanism. JEL: F31 C50 E70

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U.S. monetary policy and China's exchange rate policy during the great recession

Cited by 11 publications

References 63 publications

Macroeconomic performance of countries across monetary policy regimes from 2000 to 2017

Macroeconomic performance of countries across monetary policy regimes from 2000 to 2017

The Co-volatility of Uncertainty Shock on Chinese Exchange Rate: Based on Time-frequency Domain and Time-varying Method

Economic Uncertainty and Exchange Market Pressure: Evidence From China

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