The macroeconomic effects of RMB internationalization: The perspective of overseas circulation

Please cite the paper as:
Cong Wang, Xue Wang, (2018), The macroeconomic effects of RMB internationalization: The perspective of overseas circulation, World Economics Association (WEA) Conferences, No. 1 2018, Monetary Policy after the Global Crisis, 19th February to 20th April, 2018


The RMB Internationalization has a great impact on China’s domestic economy. This paper applies the Gap Estimation approach to estimate the RMB overseas circulation amount from 1997 to 2015, as the indicator of RMB internationalization. Using the recently developed Directed Acyclic Graph (DAG) method for the model identification and contemporaneous causality analysis. The SVAR model is constructed between the economic indicators (the interest rate, the CPI and the exchange rate) and the RMB overseas circulation. The dynamic relationship and degree of mutual influence are further studied between the economic indicators and overseas circulation. The results show that there exist contemporaneous causalities of “from RMB overseas circulation to inflation rate”, “from exchange rate to overseas circulation” and “from exchange rate to the inflation rate”. The influence of interest rate adjustment on macro economy presents the time lag effect. The internationalization of the RMB encourages the currency appreciation. The China’s central bank passively looses monetary policy to meet the needs of internationalization and reduce the shock of the international hot money, thereby further deepening the domestic inflation.

This paper is forthcoming in a book:

This paper will be published in William A. Barnett and Bruno S. Sergie (eds.), Banking and Finance Issues in Emerging Markets, Emerald Press.

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