The Chinese Yuan after the Chinese Exchange Rate System Reform

Author Name OGAWA Eiji  (Faculty Fellow, RIETI / Graduate School of Commerce and Management, Hitotsubashi University) /SAKANE Michiru  (Graduate School of Commerce and Management, Hitotsubashi University)
Creation Date/NO. April 2006 06-E-019
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In this paper, we investigate the actual exchange rate policy conducted by the Chinese government after the Chinese exchange rate system reform on July 21 2005. Also, we investigate long-run effect (Balassa-Samuelson effect) on the Chinese yuan. We found that the Chinese government had a statistically significant but small change in exchange rate policy during our sample period to January 25, 2006. It is not identified that the Chinese monetary authority is adopting the currency basket system because the change is too small in the economic sense. On one hand, higher growth rate of productivity will appreciate the Chinese yuan in terms of the US dollar and the Japanese yen while higher growth rates of productivity in Chinese tradable good sector tend to give the Balassa-Samuleson effect, that is undervaluation bias, to the Chinese yuan.

Published: Eiji Ogawa and Michiru Sakane, 2006. "Chinese Yuan after Chinese Exchange Rate System Reform," China & World Economy, Vol. 14(6), pp. 39-57.