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Central bank swap arrangements and exchange rate volatility: Evidence from China

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  • Yu, Ziliang
  • Liu, Xiaomeng
  • Liu, Zhuqing
  • Li, Yang

Abstract

We examine how bilateral currency swap arrangements (BSAs) conducted by the People's Bank of China affect bilateral exchange rate volatility from 2009 to 2019. Applying an intervention analysis based on the model-selection approach, we find 21 (16) significant (negative) effects out of the 37 cases. The results imply that BSAs may depress bilateral exchange rate volatility, but the effects vary across countries and sometimes can even be reversed. Further investigation shows that financial market development and bilateral political relationships are significant determinants of such an influential pattern. These findings contribute to the study of central bank swap and Renminbi internationalization.

Suggested Citation

  • Yu, Ziliang & Liu, Xiaomeng & Liu, Zhuqing & Li, Yang, 2023. "Central bank swap arrangements and exchange rate volatility: Evidence from China," Emerging Markets Review, Elsevier, vol. 56(C).
    • Handle: RePEc:eee:ememar:v:56:y:2023:i:c:s1566014123000493
    DOI: 10.1016/j.ememar.2023.101044
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    More about this item

    Keywords

    Central bank; Bilateral swap arrangements; Exchange rate volatility; Renminbi internationalization; International financial system;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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