Title: Impact of renminbi exchange rate expectation on China's foreign exchange reserves: an empirical analysis

Authors: Jiancheng Du; Jiaoju Ge; Jin Qiao

Addresses: Harbin Institute of Technology Shenzhen Graduate School, HIT Campus of University Town of Shenzhen, Shenzhen, 518055, China ' Harbin Institute of Technology Shenzhen Graduate School, HIT Campus of University Town of Shenzhen, Shenzhen, 518055, China ' Harbin Institute of Technology Shenzhen Graduate School, HIT Campus of University Town of Shenzhen, Shenzhen, 518055, China

Abstract: Compared with the previous researches giving scattered and qualitative discussions about the exchange rate expectation China's foreign exchange reserves (FER), this paper conducted an empirical research by adding the exchange rate expectation. Starting from the evolution path of RMB exchange regime, two methods was used to examine the impact of expectation of RMB exchange rate on China's FER. The first method was based on the rational expectation theory. Firstly, the sequence of rational expectations of RMB exchange rate was generated, after which combined the sequence with other major macroeconomic indicators as a whole to examine their effects on FER in different periods. In the second method, the indicator of NDF was directly used and the next step was the same as method one. Both of the results based on the two different methods mentioned above indicated that the change of expectation of RMB exchange rate positively correlated to FER.

Keywords: renminbi exchange rate; exchange rate expectation; foreign exchange reserves; FER; sustainable economies; sustainability; sustainable development; China; rational expectations; macroeconomic indicators; NDFs; non-deliverable forwards.

DOI: 10.1504/IJSE.2014.065399

International Journal of Sustainable Economy, 2014 Vol.6 No.4, pp.327 - 344

Received: 22 Jun 2013
Accepted: 17 Apr 2014

Published online: 23 Oct 2014 *

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