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Report
China’s evolving managed float: an exploration of the roles of the fix and broad dollar movements in explaining daily exchange rate changes
We investigate the drivers of daily changes in the exchange value of the Chinese currency (CNY) since early 2016, when a new regime was introduced for setting the fix?the midpoint of the CNY?s daily trading range against the U.S. dollar. Daily changes in the fix, which is announced just prior to the onset of onshore trading, are shown to be highly predictable and very responsive to the change in the CNY/USD rate during the previous day?s onshore trading session and to changes in dollar cross rates. While highly predictable, the fix is shown to have uneven predictive power for the subsequent ...
Working Paper
Does the choice of nominal anchor matter?
The conventional wisdom on nominal anchors is that exchange rate-based inflation stabilizations lead to economic booms while monetary-based stabilizations lead to recessions. This study finds strong evidence against this view. Rather than determining the path of economic growth, the choice of nominal anchor appears to be endogenously determined by the state of the economy. To peg or manage the exchange rate, a high level of international reserves is important, especially when a government?s credibility is low after a period of high inflation. After controlling for the level of international ...