The fit of model is indicated by the adjusted R 2 ¼ 0.9 and the p -value of F -test is smaller than 1 percent, which is quite good for the revaluation period. The statistically significant EC indicates the existence of cointegration between the real exchange rate g t -value 200507-200806 (revaluation period) 8.9 * 6.5 200507-200906 (after the first revaluation period) 86 * 3.8 Notes: e i ; t ¼ u þ g un i ; t þ 1 i ; t ; Significant at: * 1 percent level; e is real exchange rate, Chinese Yuan per US dollar; un is unemployment rate of China, u is constant term and is not estimated in cointegration equation Table V. Normalized cointegraion equation for exchange rate and unemployment rate b t -value g t -value 200101 200906 (full period) 2 269 * 2 3.4 30.2 * 5.3 200507 200806 (revaluation period) 2 9.67 * 2 3.8 4.58 * 8.2 Notes: e i ; t ¼ v þ b id i ; t þ g un i ; t þ 1 i ; t ; Significant at: * 1 percent level; e is real exchange rate, Chinese Yuan per US dollar; id is real IRD, un is unemployment rate of China, v is constant term and is not estimated in cointegration equation Table VI. Normalized cointegraion equation for exchange rate, interest rate and unemployment rate China’s exchange rate regime 187 Downloaded by MAHIDOL UNIVERSITY At 00:01 31 January 2016 (PT)

and unemployment. The significantly positive coefficients of D un ( 2 2), D un ( 2 3), D un ( 2 4), D un ( 2 5), D un ( 2 6) and D un ( 2 8) support the notion that China would depreciate Yuan when the unemployment rate increases. The China Government may appreciate Yuan when the unemployment rate decreases. By examining the short-term impact in the period after the first Yuan revaluation using the VECM results (Table VII), we will notice that the fit of model, denoted by the adjusted R 2 , is 0.52 and the p -value of F -test is smaller than 1 percent, indicating a good fit. The lagged EC is significantly positive at a 10 percent level. All the coefficients of D un variables are approximately 0, which perhaps is because the real exchange rate fluctuated comparatively less from July 2008 to June 2009. The full period registers the smallest adjusted R 2 value (0.29), with D e ( 2 1) being the only term that significantly affects the dependent variable. Revaluation period After the first revaluation period Full period Variable Coefficient t -value Variable Coefficient t -value Variable Coefficient t -value int u 2 0.09 * * * 2 3.63 int u 0.0014 * * * 3.1 int u 2 0.01 * * * 2 2.36 EC a 0.36 * * * 3.92 EC 1 0.01 * 1.70 EC 1 0.003 0.88 D e( 2 1) 2 0.57 * * * 2 2.17 D e( 2 1) 0.50 * * * 3.1 D e( 2 1) 0.30 * * * 2.78 D e( 2 2) 2 0.41 * * * 2 1.86 D e( 2 2) 2 0.02 2 0.16 D e( 2 2) 0.091 0.81 D e( 2 3) 2 0.34 2 1.54 D un( 2 1) 0.03 0.13 D e( 2 3) 0.09 0.80 D e( 2 4) 2 1.14 * * * 2 5.50 D un( 2 2) 0.27 1.09 D e( 2 4) 0.027 0.25 D e( 2 5) 2 0.58 * * 2 1.96 D un( 2 1) 0.056 0.29 D e( 2 6) 2 0.14 2 0.56 D un( 2 2) 0.046 0.19 D e( 2 7) 0.37 * 1.81 D un( 2 3) 0.146 0.60 D e( 2 8) 0.46 * 1.90 D un( 2 4) 0.121 0.62 D un( 2 1) 0.35 1.31 D un( 2 2) 1.45 * * * 4.59 D un( 2 3) 0.94 * * * 2.79 D un( 2 4) 0.96 * * * 2.59 D un( 2 5) 1.08 * * * 2.67 D un( 2 6) 1.12 * * * 3.26 D un( 2 7) 2 0.05 2 0.10 D un( 2 8) 0.77 * * * 2.16 R 2 0.97 R 2 0.57 R 2 0.356 Adj. R 2 0.90 Adj. R 2 0.52 Adj. R 2 0.29 F -test 15.7 * * * F -test 10.3 * * * F -test 5.35 * * * p -value 0.001 p -value 0.001 p -value 0.001 LM-stat b 4.82 LM-stat 1.11 LM-stat 2.23 p -value 0.06 p -value 0.89 p -value 0.69 Notes: D e t ¼ u þ l EC t 2 1 þ P l i ¼ 1 f i D e t 2 i 2 1 þ P l i ¼ 1 x i D un t 2 i þ v t ; Significant at: * 10, * * 5 and * * * 1 percent levels; a