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The Time-Varying Causal Relationship Between International Capital Flows And The Real Effective Exchange Rate: New Evidence For China

Author

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  • YANPING ZHAO

    (School of Economics, Ocean University of China, Shandong, China)

  • XIAOYAN LI

    (School of Economics, Ocean University of China, Shandong, China)

  • JAKOB DE HAAN

    (��De Nederlandsche Bank, Amsterdam, The Netherlands‡University of Groningen, Groningen, The Netherlands§CESifo, Munich, Germany)

Abstract

We test the bilateral causal relationship between four types of international capital flows and the real effective exchange rate (REER) in China over the period 1998:Q1 to 2016:Q2 and examine whether the link is time varying. Parameter stability tests suggest that the relationship between capital flows and the RMB REER is time varying both in the short and the long run. Bootstrap rolling-window causality tests suggest bidirectional Granger causal relationships between the current account, portfolio investments and FDI, and the REER in several sub-periods, and a Granger-causal relationship from foreign exchange reserves to the REER in some sub-periods.

Suggested Citation

  • Yanping Zhao & Xiaoyan Li & Jakob De Haan, 2022. "The Time-Varying Causal Relationship Between International Capital Flows And The Real Effective Exchange Rate: New Evidence For China," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 67(04), pages 1253-1274, June.
    • Handle: RePEc:wsi:serxxx:v:67:y:2022:i:04:n:s0217590819500097
    DOI: 10.1142/S0217590819500097
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    Cited by:

    1. Innocent Chile Nzeh & Uche Collins Nwogwugwu & Maria Chinecherem Uzonwanne & Christopher Urua Kalu & Emmanuel Chinonye Akalazu, 2024. "Investigating the Joint Impact of Exchange Rate and Foreign Direct Investment Inflows on Domestic Interest Rate in Nigeria," Financial Economics Letters, Anser Press, vol. 3(2), pages 1-15, February.

    More about this item

    Keywords

    International capital flows; real effective exchange rate; rolling windows; structural change;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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