A Comparative Study on the Current Account in China under Pegged Exchange Rate Regime and Floating Exchange Rate Regime

Yugang He

Abstract


The purpose of this paper is to explore the behaviors of current account under pegged exchange rate regime and floating exchange rate regime. The quarterly data from 1994 to 2016 is applied to establish a vector auto regression model to analyze the operating mechanism among current account, real exchange rate, real GDP and interest rate. The empirical analysis results show that the terms of trade and real exchange rate have a little effect on current account under the pegged exchange rate regime. However, the results also show that the terms of trade and real exchange rate have relative greater effect on current account under the floating exchange rate regime. Even though its behavior is bigger than that of pegged exchange rate regime, it is still not very significant. Therefore, this paper provides a new suggestion that always imputing the current account deficit to impact of exchange rate regime is unreliable.


Keywords


Current Account, Terms of Trade, Real Exchange Rate, Exchange Rate Regime, Vector Auto-regression Model

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