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- Title
On the Relationship between NEER and REER Movements: Empirical Evidence from China.
- Authors
SHAHBAZ, Muhammad; WAHID, Abu N. M.; JALIL, Abdul
- Abstract
Chinese nominal exchange rate experienced a substantial appreciation after shifting onto (highly) managed floating exchange rate system from that of the fixed. Importantly, real effective exchange rate (REER) has actually depreciated. Keeping this in view, recently, People's Bank of China (PBC) started to manage nominal effective exchange rate (NEER) instead of RMB/USD parity. In this article, we estimate the linkages between the NEER and the real exchange rate (REER) movements in the short run as well as in the long run. We use the auto regressive distributive lag model to estimate the long run relationship between REER and NEER. To test the robustness of our result, we have also applied dynamic ordinary least squares model. Results of this study reveal that nominal effective exchange rate changes not only leads to real effective exchange rate changes in the long run but also in short run.
- Subjects
CHINA; FOREIGN exchange rates; FOREIGN exchange; LEAST squares; MONETARY policy
- Publication
Banking & Finance Letters, 2010, Vol 2, Issue 2, p271
- ISSN
1308-6588
- Publication type
Article