A reinvestigation of the new RMB exchange rate regime

To examine the new renminbi exchange rate regime rigorously, we employ the STARTZ model to investigate renminbi nominal effective exchange rate behavior from mid-2006 to mid-2008. A managed float with a target central parity and without an explicit band best describes the daily exchange rate movement between renminbi and other currencies. We also find some peculiar attributes of the renminbi nominal effective exchange rate, including small conditional variance and stronger effects from government interventions in foreign exchange markets.

► We study RMB nominal effective exchange rate behavior from mid-2006 to mid-2008. ► We find a managed float with hidden band best describes the exchange rate movement. ► Our outcome verifies the “BBC” hypothesis for de facto renminbi regime.