Abstract:
This paper takes the influences of third-market competition and investment into the calculation of RMB effective exchange rate index. 29 Basket currencies are chosen by establishing the direct export and import competition index, third-market competition stress index as well as FDI and OFDI structure index with data from 1999 to 2016, and weights are assigned according to the spillover index estimation of basket currencies using daily exchange rate data from January 1999 to April 2017. To verify the effectiveness of the index calculated, this paper utilizes the Johansen cointegration and ECM method to estimate the export and FDI determination equations and compare the explanation power of different RMB effective exchange rate indexes. Result indicates that the RMB effective exchange rate we established is more efficient than the BIS and IMF ones.
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