Browsing by Author "Cheung, Yin-Wong"

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  • Cheung, Yin-Wong (2020)
    BOFIT Policy Brief 13/2020
    Published in Economic and Political Studies online
    This article recounts China’s renminbi (RMB) internationalization experiences since the 2009 RMBcross-border trade settlement initiative. In the first few years, the RMB made inroads into global financial markets and had a few remarkable accomplishments, including the Special Drawing Right currency status. Since the 2015 market turmoil, RMB internationalization has levelled off – possibly due to changes in both domestic and geopolitical conditions. The RMB is currently under-represented in the global market compared with China’s economic importance. China’s deliberate and schematic policies will elevate the RMB’s global stature in a gradual manner but there will not be a leapfrogging in the near term.
  • Cheung, Yin-Wong; Chinn, Menzie D.; Qian, XingWang (2012)
    BOFIT Discussion Papers 14/2012
    Published in Journal of International Money and Finance, Volume 31, Issue 8, 2012, Pages 2127-2146
    We find that Chinese trade flows respond to economic activity and relative prices -- as represented by a trade weighted exchange rate -- but the relationships are not always precisely or robustly estimated. Chinese exports are generally well-behaved, rising with foreign GDP and decreasing as the Chinese renminbi (RMB) appreciates. However, the estimated income elasticity is sensitive to the treatment of time trends. Estimates of aggregate imports are more problematic. In many cases, Chinese aggregate imports actually rise in response to a RMB depreciation and decline with Chinese GDP. This is true even after accounting for the fact a substantial share of imports are subsequently incorporated into Chinese exports. We find that some of these counter-intuitive results are mitigated when we disaggregate the trade flows by customs type, commodity type, and the type of firm undertaking the transactions. However, for imports, we only obtain more reasonable estimates of elasticities when we allow for different import intensities for different components of aggregate demand (specifically, consumption versus investment), or when we include a relative productivity variable. Keywords: China, imports, exports, real exchange rate JEL: F14, F41
  • Cheung, Yin-Wong; Herrala, Risto (2013)
    BOFIT Discussion Papers 22/2013
    Published in Pacific Economic Review, 19: 1 (2014), pp. 112–134
    We study the renminbi (RMB) covered interest differential - an indicator of the effectiveness of capital controls. It is found that the differential is not shrinking over time and, in fact, appears larger after the global financial crisis than before. That is, capital controls in China are still substantial and effective. In addition to exchange rate changes and volatilities, the RMB covered interest differential is affected by credit market tightness indicators. The marginal explanatory power of these macroeconomic factors, however, is small relative to the autoregressive component and the dummy variables that capture changes in China's policy. Keywords: NDF implied RMB interest rate, capital controls, asymmetric response, macro determinants, credit market tightness JEL: E44, F31, F32.
  • Cheung, Yin-Wong; Fujii, Eiji (2011)
    BOFIT Discussion Papers 25/2011
    Published in International Journal of Finance and Economics, Volume 19, Issue 2, March 2014, Pages 91-121.
    We study the differences in currency misalignment estimates obtained from alternative datasets derived from two International Comparison Program (ICP) surveys. A decomposition exercise reveals that the year 2005 misalignment estimates are substantially affected by the ICP price revision. Further, we find that differences in misalignment estimates are systematically affected by a country s participation status in the ICP survey and its data quality a finding that casts doubt on the economic and policy relevance of these misalignment estimates. The patterns of changes in estimated degrees of misalignment across individual countries, as exemplified by the BRIC economies, are highly variable.
  • Cheung, Yin-Wong; Sengupta, Rajeswari (2013)
    BOFIT Discussion Papers 10/2013
    Published in Journal of International Money and Finance, Volume 39, December 2013, Pages 231-245.
    We explore the real effective exchange rate (REER) effects on the share of exports of Indian non-financial sector firms for the period 2000 to 2010. Our empirical analysis reveals that, on average, there has been a strong and significant negative impact from currency appreciation and currency volatility on market shares of India's exporting firms. Labor costs are found to amplify the exchange- rate effects on trade. Further, there is evidence that the Indian firms considered here respond asymmetrically to exchange rates. A REER change effect, for example, is more likely to arise from a negative appreciation effect than a depreciation effect. Indian firms with smaller export shares tend to respond more strongly to both REER change and volatility than those with larger export shares. Services exporters are impacted more strongly by exchange rate fluctuations than firms exporting goods. The findings on asymmetric responses, in particular, have important policy implications. JEL classifications: F1, F4 Keywords: exchange rate fluctuations, firm-level export shares, asymmetric effects, services exports
  • Cheung, Yin-Wong; Rime, Dagfinn (2014)
    BOFIT Discussion Papers 17/2014
    Published in Journal of International Money and Finance, Volume 49, Issue PA, December 01, 2014, Pages 170-189.
    The offshore renminbi (CNH) exchange rate is the exchange rate of the Chinese currency transacted outside China. We study the CNH exchange rate dynamics and its links with onshore exchange rates. Using a specialized microstructure dataset, we find that CNH is significantly affected by its order flow and limit-order imbalance. The offshore CNH exchange rate has an increasing impact on the onshore rate, and significant predictive power for the official RMB central parity rate. The CNH order flow also affects the onshore RMB exchange rate and the central parity rate. The interactions between variables are likely to be time-varying. Publication keywords: foreign exchange market microstructure, order flow, limit-order imbalance, CNH, CNY, central parity rate
  • Cheung, Yin-Wong; Hui, Cho-Hoi; Tsang, Andrew (2017)
    BOFIT Discussion Papers 7/2017
    On August 11, 2015, China revamped its procedure for setting the official central parity of the renminbi (RMB) against the US dollar. Our empirical investigation suggests that the intertemporal dynamics of China’s central parity shifted after this policy change, though the deviation of the RMB offshore rate from the central parity and the US dollar index remained the two significant determi-nants of central parity after the policy change. In contrast, the VIX index only offered explanatory power up to August 2015. Thereafter, the onshore RMB rate and the difference between the one-month offshore and onshore RMB forward points have significant impacts on the central parity. While the US dollar index effect remains, we find no evidence of a rate-fixing role for the RMB exchange rate against the currency basket announced by China in December 2015.
  • Cheung, Yin-Wong (2014)
    BOFIT Policy Brief 11/2014
    Recently, China has been quite aggressive in promoting the international use of its currency, the renminbi (RMB). Historical experiences suggest that an active offshore market is essential for a global currency. Indeed, anecdotal evidence affirms the role of offshore RMB markets in pushing the RMB to the world. One should not, however, overplay the contribution of offshore markets. While offshore markets offer the opportunities to experiment with the global use of the currency, the overseas acceptance of the RMB is ultimately determined by both internal and external economic forces, and geopolitical factors. With its relatively small size, the offshore RMB is not likely to pressure China and alter its financial liberalization policy. A well-organized offshore RMB market will complement China's RMB internationalization policy, but could not raise the currency's global status beyond the level justified by it economic and political attributes. JEL Codes: F33
  • Cheung, Yin-Wong; Chinn, Menzie D.; Qian, XingWang (2014)
    BOFIT Discussion Papers 23/2014
    Published in Review of World Economics, February 2016, Volume 152, Issue 1, pp 43-67 as China–US trade flow behavior: the implications of alternative exchange rate measures and trade classifications
    We examine Chinese-US trade flows over the 1994-2012 period, and find that, in line with the conventional wisdom, the value of China’s exports to the US responds negatively to real renminbi (RMB) appreciation, while import responds positively. Further, the combined empirical price effects on exports and imports imply an increase in the real value of the RMB will reduce China’s trade balance. The use of alternative exchange rate measures and data on different trade classifications yields additional insights. Firms more subject to market forces exhibit greater price sensitivity. The price elasticity is larger for ordinary exports than for processing exports. Finally, accounting for endogeneity and measurement error matters. Hence, the purging the real exchange rate of the portion responding to policy, or using the deviation of the real exchange rate from the equilibrium level yields a stronger measured effect than when using the unadjusted bilateral exchange rate. Publication keywords: import, export, elasticity, real exchange rate, processing trade
  • Cheung, Yin-Wong; He, Shi (2019)
    BOFIT Discussion Papers 3/2019
    We conduct a meta-regression analysis of 69 studies that generated 937 renminbi (RMB) misalignment estimates. The Bayesian Model Averaging (BMA) approach is adopted to allow for model selection and sampling uncertainties in assessing effects of study characteristics on these RMB misalignment estimates. Misalignment estimates are found to be influenced by the eight selected study characteristic types in our median probability model. The RMB misalignment estimate from models with various hypothetical combinations of study characteristics, however, is mostly insignificantly different from zero. It is also shown that the set of significant study characteristics is sensitive to the use of the least squares estimation method and the choice of benchmark study characteristics.