External Influence on Exchange Rates: An Empirical Investigation of US Pressure and the Chinese RMB

Forthcoming, Review of International Political Economy

61 Pages Posted: 18 Oct 2016 Last revised: 29 Jul 2018

Jessica Chen Weiss

Cornell University - Department of Government

Amber Wichowsky

Marquette University

Date Written: July 19, 2018

Abstract

Trade imbalances have often led to accusations of “currency manipulation” and efforts to remedy the purported effects of exchange rate misalignment. This paper investigates the impact of US pressure on China to revalue the RMB. Using vector autoregression (VAR) to analyze an original dataset of US statements and actions between 2005 and 2012, we examine the over-time dynamics between US pressure and the nominal RMB/USD exchange rate. A case study of mounting US pressure in advance of the 2010 midterm election illustrates China’s responsiveness in timing adjustments in the RMB to defuse the risk of an international confrontation. Our findings indicate that external political pressures can influence national exchange rate policies under certain conditions.

Keywords: Exchange Rates, Currency, China, renminbi

Suggested Citation

Weiss, Jessica Chen and Wichowsky, Amber, External Influence on Exchange Rates: An Empirical Investigation of US Pressure and the Chinese RMB (July 19, 2018). Forthcoming, Review of International Political Economy. Available at SSRN: https://ssrn.com/abstract=2853701 or http://dx.doi.org/10.2139/ssrn.2853701

Jessica Chen Weiss (Contact Author)

Cornell University - Department of Government ( email )

Ithaca, NY 14853
United States

Amber Wichowsky

Marquette University ( email )

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