China's intervention in the central parity rate: A Bayesian Tobit analysis

- This paper applies a Bayesian Tobit approach to investigate the determinants of China's daily price intervention decision.
- Through using IFV model, we construct a Daily Intervention Index.
- China's intervention decision is followed by the leaning-against-the-wind policy, and conditions of domestic economy and foreign market.
- The objectives of China's intervention change not only over time, but also between high and low interventions.

This paper investigates China's daily foreign exchange intervention through the setting and adjustment of the central parity rate, using daily data from July 22, 2005 to July 22, 2013. Applying a Bayes Tobit model, we find evidence that China's daily price intervention decision is driven by market developments regarding the Chinese currency, international currency movements and macroeconomic conditions. The results further suggest that the objectives of China's daily price intervention change not only over time, but also between high and low interventions.