New Estimation of China's Exchange Rate Regime

Jeffrey A. Frankel

NBER Working Paper No. 14700
Issued in February 2009
NBER Program(s):   IFM

The paper updates the answer to the question: what precisely is the exchange rate regime that China has put into place since 2005, when it announced a move away from the dollar peg? Is it a basket anchor with the possibility of cumulatable daily appreciations, as was announced at the time? We apply to this question a new approach to estimating countries' de facto exchange rate regimes, a synthesis of two techniques. One is a technique that has been used in the past to estimate implicit de facto currency weights when the hypothesis is a basket peg with little flexibility. The second is a technique used to estimate the de facto degree of exchange rate flexibility when the hypothesis is an anchor to the dollar or some other single major currency. Since the RMB and many other currencies today purportedly follow variants of Band-Basket-Crawl, it is important to have available a technique that can cover both dimensions, inferring weights and inferring flexibility. The synthesis adds a variable representing "exchange market pressure" to the currency basket equation, whereby the degree of flexibility is estimated at the same time as the currency weights. This approach reveals that by mid-2007, the RMB basket had switched a substantial part of the dollar's weight onto the euro. The implication is that the appreciation of the RMB against the dollar during this period was due to the appreciation of the euro against the dollar, not to any upward trend in the RMB relative to its basket.

download in pdf format
   (226 K)

email paper

This paper is available as PDF (226 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w14700

Published: JeffreyA. Frankel, 2009. "New Estimation Of China'S Exchange Rate Regime," Pacific Economic Review, Blackwell Publishing, vol. 14(3), pages 346-360, 08. citation courtesy of

Users who downloaded this paper also downloaded these:
Cheung, Chinn, and Fujii w14673 China's Current Account and Exchange Rate
Wang and Whalley w13586 The Impacts of Renminbi Appreciation on Trades Flows and Reserve Accumulation in a Monetary Trade Model
Frankel and Wei w14016 Estimation of De Facto Exchange Rate Regimes: Synthesis of the Techniques for Inferring Flexibility and Basket Weights
Shi w12551 Are Currency Appreciations Contractionary in China?
Eichengreen and Hatase w11625 Can a Rapidly-Growing Export-Oriented Economy Smoothly Exit an Exchange Rate Peg? Lessons for China from Japan's High-Growth Era
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us