A retrospection of the Chinese exchange rate regime after reform : stylized facts in the five years

In this paper, we estimate the de facto RMB exchange rate regime, currency basket, floating band and foreign exchange market pressure before and after the reform of the Chinese exchange rate regime in 2005. The stylized facts indicate that the value of RMB became more stable; the weight of US Dollar keep high in the basket, but other currencies become statistically significant; the flexibility band gradually increased to 10% in the first three years but greatly narrowed since the late summer of 2008 under the assumption of yearly resetting interval. We found that the foreign exchange market pressure became higher after the reform till 2008. The reason for it might be the weight of US Dollar in the basket is lower than the share of US Dollar in total transaction on the Chinese foreign exchange market. Since RMB tightened its peg to US Dollar in 2009, the foreign exchange market pressure became lower