Inflation and foreign exchange intervention in china.

详细信息   

• 作者：Deng ; Yixi.
• 学历：M.P.P.
• 年：2014
• 毕业院校：Georgetown University
• Department：Public Policy & Policy Management
• ISBN：9781303853029
• CBH：1554523
• Country：USA
• 语种：English
• FileSize：2847711
• Pages：41

文摘

This paper investigates the relationship between foreign exchange intervention and domestic inflation in the context of China. Specifically,this study empirically examines whether the increase in foreign reserves on the central bank's balance sheet,which is a reflection of foreign exchange intervention,would lead to the increase in Consumer Price Index,a common measure of domestic inflation. The existing literature studied several mechanisms of how foreign exchange policy influenced domestic inflation,such as through foreign exchange rate,global commodity prices and the capital inflow. The study here attempts to quantify the relationship between the central bank's foreign exchange intervention and domestic inflation through the account of foreign reserves,which is less discussed in the existing literature. This study uses the monthly-frequency macroeconomic data from China's Statistics Bureau and People's Bank of China (the central bank of China) for the period from January 1998 to December 2012. It applies the time series Vector Auto Regression model,which helps select the best lag time to empirically examine the relationship between foreign reserves and domestic inflation,while controlling for other factors that influence the domestic price level. The study examines three specific time frames. Across all time periods,the relationship between foreign exchange reserve in prior months and inflation in the future is positive with statistical significance. This helps the central bank to quantify the trade-off between its policy goals and guide its gradual reform towards a more balanced monetary system.