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
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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

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