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The Undisclosed Renminbi Basket: Are the Markets Telling us Something About Where the Renminbi-US Dollar Exchange Rate is Going?

27 Pages Posted: 6 Nov 2007 Last revised: 14 Apr 2009

Michael Funke

University of Hamburg - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Marc Gronwald

University of Aberdeen; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: November 6, 2007

Abstract

On 21 July 2005 China adopted an undisclosed basket exchange rate regime. We formally assess and envisage the gradual evolution of the renminbi over time. We utilize nonlinear dependencies in the renminbi exchange rate and describe the smooth transition of the renminbi/U.S. dollar (RMB/USD) exchange rate using the family of time-varying autoregressive (TV-AR) models. Specifically, the nonlinear models allow for a smooth transition from one optimal level to another. Our estimation results imply that the RMB/USD exchange rate will likely be about 7.42 RMB/USD in summer/autumn 2008.

Keywords: China, renminbi, de facto exchange rate regime, TV-AR model, TV-AR-GARCH model

JEL Classification: C22, F31, F37

Suggested Citation

Funke, Michael and Gronwald, Marc, The Undisclosed Renminbi Basket: Are the Markets Telling us Something About Where the Renminbi-US Dollar Exchange Rate is Going? (November 6, 2007). BOFIT Discussion Paper No. 20/2007. Available at SSRN: https://ssrn.com/abstract=1027868 or http://dx.doi.org/10.2139/ssrn.1027868

Michael Funke (Contact Author)

University of Hamburg - Department of Economics ( email )

Von-Melle-Park 5
room 2128 C rise
Hamburg, 20146
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Marc Gronwald

University of Aberdeen ( email )

Dunbar Street
Aberdeen AB24 3QY, Scotland AB24 3QY
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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