A Glimpse into a Potential Influencing Factor of China’s Exchange Rate: Social Financing Scale
Abstract
The indicator of social financing scale (SFS) has become a new intermediate target for China’s socioeconomic regulation since 2011, which has a better tracking performance on important economic indicators such as CPI and is also the new intermediate target of monetary policy used by China’s central bank to replace M2 at present. So, is there an impact of the social financing scale on another important economic indicator, the RMB exchange rate? This paper conducted an OLS regression analysis of the time series data of social financing scale and the nominal effective exchange rate (NEER) of RMB for a total of 61 months from October 2016 to October 2021 and find that SFS has a significant positive impact on the exchange rate of RMB. This result means that the expansion of SFS will lead to the appreciation of RMB. In addition, the paper fills the research gap on the combination of SFS and RMB exchange rate, and suggests that mechanisms such as monetary policy or domestic interest rates may be responsible for this correlation at the theoretical level.
Keywords
Full Text:
PDFReferences
Peel, D.A., Taylor, M.P., 2002. Covered Interest Rate Arbitrage in the Interwar Period and the Keynes-Einzig Conjecture. Journal of Money, Credit and Banking. 34(1), 51-75.
Ding, L., 2021. Conditional correlation between exchange rates and stock prices. The Quarterly Review of Economics and Finance. (80), 452-463.
Svensson, L.E.O., 1997. Optional Inflation target conservative central bank and linear inflation contracts. American Economic Review. (87), 98-114.
Borio, C., Lowe, P., 2002. Assessing the Risk of Banking Crises. BIS Quarterly Renew. pp. 43-54.
Borio, C., White, W., 2004. Whither monetary and financial stability? The implications of evolving policy regimes. BIS Working Papers.
Li, B., Liu, Q., 2017. On the choice of monetary policy rules for China: A Bayesian DSGE approach. China Economic Review. 44, 166-185.
Dornbusch, R., 1976. Expectations and exchange rate dynamics. Journal of Political Economy. 84(6), 1161-1176.
Inoue, A., Rossi, B., 2019. The effects of conventional and unconventional monetary policy on exchange rates. Journal of International Economics. (118), 419-447.
Ferrari, M., Kearns, J., Schrimpf, A., 2021. Monetary policy’s rising FX impact in the era of ultra-low rates. Journal of Banking & Finance. (129), 106-142.
Calvo, G.A., Leiderman, L., Reinhart, C.M., 1996. Inflows of Capital to Developing Countries in the 1990s. Journal of Economic Perspectives. 10(2), 123-139.
Montiel, P., Reinhart, C.M., 1999. Do Capital Controls and Macroeconomic Policies Influence the Volume and Composition of Capital Flows? Evidence from the 1990s. Journal of International Money and Finance. 18(4), 619-635.
Kim, Y., 2000. Causes of Capital Flows in Developing Countries. Journal of International Money and Finance. 19(2), 235-253.
Wang, Ch.L., 2010. Determinants and Misalignment of Renminbi Real Effective Exchange Rate: 1994~2009. Journal of Financial Research. (6), 34-45.
Ulm, M., Hambuckers, J., 2022. Do interest rate differentials drive the volatility of exchange rates? Evidence from an extended stochastic volatility model. Journal of Empirical Finance. (65), 125-148.
Koo, J., Maeng, K., 2005. The Effect of Financial Liberalization on Firms’ Investments in Korea. Journal of Asian Economics. 16(2), 281-297.
Laeven, L., 2003. Does Financial Liberalization Reduce Constraints? Financial Management. (32), 5-34.
Aoki, K., Benigno, G., Kiyotaki, N., 2010. Adjusting to Capital Account Liberalization. Discussion Paper Series.
Bayoumi, T., Ohnosorge, F., 2013. Do Inflows and Outflows Dominate? Global Implications of Capital Account Liberalization in China. IMF Working Paper.
DOI: http://dx.doi.org/10.26549/jfr.v6i1.11133
Refbacks
- There are currently no refbacks.
![Creative Commons License](http://licensebuttons.net/l/by-nc/4.0/88x31.png)
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.