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Does Political Pressure from the U.S. Cause Abnormal Return Rate of the RMB Exchange Rate?

【Authors】
GUO Wei
【WorkUnit】
Guangdong University of Finance, 510521.
【Abstract】

In exchange rate political economics, the exchange rate issue has never been taken merely as a price issue, nor is it a variable just under the influence of macro factors within a country. Behind it are intricate global power disputes and distribution of interests The U.S., a country with internationally influential monetary power, has long been pushing the appreciation of RMB by imposing pressure on the RMB exchange rate. This paper applies the “classified event-abnormal return rate method” to determine whether political pressures from the U.S. caused abnormal return rate of the RMB exchange rate from July 22, 2005 to March 31, 2016. After examining the combined effect of various pressure events, the study found that the U.S. political pressure events did not cause abnormal return rate of the RMB exchange rate; in comparison to the pressure events initiated by administrative departments, the pressure events of U.S. Congress had more significant impacts on the abnormal return rate of the RMB exchange rate; when RMB is appreciating, its exchange rate is more likely to produce an abnormal rate of return under the influence of external pressure events. Against the backdrop of the anti-globalization trend and the rise of trade protectionism, Chinese monetary authorities should pay close attention to the political pressure events in which the U.S., and especially the U.S.Congress have imposed pressure upon the RMB exchange rate, and meanwhile further promoted financial reforms to maintain exchange rate stability and dwindle possible external financial risks due to U.S. political pressure, thereby mitigating the negative impact of U.S. political pressure on RMB internationalization and financial stability in China.
 
JEL:F33, F41, P16

【KeyWords】
RMB Exchange Rate, U.S. Political Pressure Events, Classified Event-Abnormal Return Rate Method