{"title":"The effects of the counter-cyclical factor on renminbi co-movements","authors":"Yike Sun","doi":"10.1016/j.intfin.2025.102144","DOIUrl":null,"url":null,"abstract":"<div><div>The counter-cyclical factor is a foreign exchange policy instrument employed by the Chinese monetary authority to adjust the central parity rate of the renminbi (RMB). This study examines how this policy tool influences the RMB’s co-movements with other currencies. A novel measure of the counter-cyclical factor’s intensity is derived from a rolling estimation of the RMB two-pillar model, enabling a more precise evaluation of the factor’s role. This measure is then incorporated into a modified Frankel–Wei model to assess the factor’s influence. Empirical results indicate that, although the counter-cyclical factor is applied more intensively during the second implementation phase, it reduces RMB co-movements more significantly during the first phase. Further analysis suggests that the initial implementation induces notable RMB appreciation, which in turn weakens the RMB’s correlations with other currencies.</div></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"101 ","pages":"Article 102144"},"PeriodicalIF":5.4000,"publicationDate":"2025-03-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of International Financial Markets Institutions & Money","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S1042443125000344","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
The counter-cyclical factor is a foreign exchange policy instrument employed by the Chinese monetary authority to adjust the central parity rate of the renminbi (RMB). This study examines how this policy tool influences the RMB’s co-movements with other currencies. A novel measure of the counter-cyclical factor’s intensity is derived from a rolling estimation of the RMB two-pillar model, enabling a more precise evaluation of the factor’s role. This measure is then incorporated into a modified Frankel–Wei model to assess the factor’s influence. Empirical results indicate that, although the counter-cyclical factor is applied more intensively during the second implementation phase, it reduces RMB co-movements more significantly during the first phase. Further analysis suggests that the initial implementation induces notable RMB appreciation, which in turn weakens the RMB’s correlations with other currencies.
期刊介绍:
International trade, financing and investments, and the related cash and credit transactions, have grown at an extremely rapid pace in recent years. The international monetary system has continued to evolve to accommodate the need for foreign-currency denominated transactions and in the process has provided opportunities for its ongoing observation and study. The purpose of the Journal of International Financial Markets, Institutions & Money is to publish rigorous, original articles dealing with the international aspects of financial markets, institutions and money. Theoretical/conceptual and empirical papers providing meaningful insights into the subject areas will be considered. The following topic areas, although not exhaustive, are representative of the coverage in this Journal. • International financial markets • International securities markets • Foreign exchange markets • Eurocurrency markets • International syndications • Term structures of Eurocurrency rates • Determination of exchange rates • Information, speculation and parity • Forward rates and swaps • International payment mechanisms • International commercial banking; • International investment banking • Central bank intervention • International monetary systems • Balance of payments.