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Frontiers of Economics in China

ISSN 1673-3444

ISSN 1673-3568(Online)

CN 11-5744/F

Postal Subscription Code 80-978

Front. Econ. China    2016, Vol. 11 Issue (4) : 694-731    https://doi.org/10.3868/s060-005-016-0034-7
Orginal Article |
The Political Cause of the Movement of RMB Exchange Rate:A Research Based on the Spillover Effects of US Political Cycle
Mengnan Zhu1(),Qian Zhao2(),Yuguang Wang3()
1. School of Economics, Xiamen University, Xiamen 361005, China
2. School of Economics, Xiamen University, Xiamen 361005, China
3. School of Economics, Xiamen University, Xiamen 361005, China
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Abstract

Movement of the renminbi (RMB) exchange rate is not only affected by economic factors, but also by political factors home and aboard. This paper analyzes the transmission mechanism of political cycles on the RMB exchange rate first, and then sets up a “political cycle spillover effect model” followed by an empirical analysis. We find that: (1) the US political cycle has a direct effect on the RMB exchange rate in the short run, which is mainly transmitted by capital flows and China’s exchange rate policy control; (2) the RMB exchange rate changes periodically in accordance with the US presidential election and midterm election cycle, with the appreciation ratio significantly lower in the first year of the election cycle, while significantly higher in the year after the midterm election; (3) The effect of the political cycle will not be affected by which party holds power, though it will be affected if the president and parliament are ruled by the same party. This paper not only extends the research of the influencing factors of the RMB exchange rate to the political field, but also sets up a use theoretical model to analyze the impact of political issues on the RMB exchange rate, providing a new perspective to fully understand the external environment of RMB exchange rate reform.

Keywords political cycle      spillover effect      RMB exchange rate     
Issue Date: 20 January 2017
 Cite this article:   
Mengnan Zhu,Qian Zhao,Yuguang Wang. The Political Cause of the Movement of RMB Exchange Rate:A Research Based on the Spillover Effects of US Political Cycle[J]. Front. Econ. China, 2016, 11(4): 694-731.
 URL:  
http://academic.hep.com.cn/fec/EN/10.3868/s060-005-016-0034-7
http://academic.hep.com.cn/fec/EN/Y2016/V11/I4/694
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