Real Exchange Rates and Real Interest Rate Parity: The Case of China
نویسندگان
چکیده
Abstract This paper empirically examines the likelihood of any long-run relationship between real exchange rate and real interest rate (RERI) differentials in China using vector autoregressive model (VAR) and hybrid cointegration methodology. The preliminary results based on some limited monthly data are indicative of a rather weak long run relationship. However, the empirical investigation also highlights the fact that since the foreign exchange reform in 1994, the deviations from the parity conditions is correlative with foreign exchange reserve and a ratio of M0 to M2.
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