Yin-Wong Cheung’s research while affiliated with University of California, Santa Cruz and other places

We examine the effects of active international reserve management (IRM) conducted by central banks of emerging market economies (EMEs) on firm investment in the presence of global financial shocks. Using firm-level data from 46 EMEs from 2000 to 2018, we document three findings. First, active IRM is found to affect firm investment positively. The effect strengthens when the magnitude of adverse external financial shocks increases. Second, financially constrained firms, compared to unconstrained ones, are less responsive to active IRM. Third, we find that 30% of the causal effect of IRM on firm investment is mediated through the country credit spread channel.

We study China’s import demand elasticities using HS 8-digit customs data on China’s provincial imports during January 2019 to March 2021. It is found that both direct bilateral exchange rate elasticity and third-country exchange rate elasticity are affected by (1) policies that these Asian economies adopted to alleviate the adverse impacts of the COVID-19 pandemic and (2) the degree of concentration of exporters exporting a certain product to a certain Chinese provincial market. It is found that economic support policies will lower the bilateral exchange rate elasticity of trade flows, or even alter the sign of the bilateral exchange rate elasticity of China’s imports. Besides, the economic support policies can alleviate the pressure of foreign competition on exporters and make the exporters more resilient to the impacts of foreign competitors’ exchange rate depreciation. In contrast, the degree of market concentration of exporters in a certain provincial market affects the exchange rate and the third-country exchange rate elasticity differently. A higher market concentration lowers the bilateral exchange rate elasticity of trade flows but magnifies the impact of foreign competitors’ currency depreciation on exporters. These results are robust to alternative modes of trade, regional heterogeneity, product heterogeneity, various measures of policy responses to the pandemic, and alternative database.

We study the differences in currency misalignment estimates obtained from datasets derived from two different International Comparison Programme (ICP) surveys. A decomposition exercise reveals that year 2005 misalignment estimates are substantially affected by the ICP price revision. Furthermore, we find that differences in misalignment estimates are systematically affected by a country's participation status in the ICP survey and its data quality-a finding that casts doubt on the economic and policy relevance of these misalignment estimates. The findings are robust to the use of alternative datasets and specifications. The patterns of changes in estimated degrees of misalignment across individual countries, as exemplified by the Brazil, Russia, India and China economies, are highly variable.

This Element discusses the global role of the RMB. After recapitulating its economic and trade growth experiences, we recount China's evolving exchange rate policy in the post-reform era, review the debate over whether the RMB is overvalued or undervalued, present China's policies to globalize the RMB, describe offshore RMB trading, assess the current global status of the RMB, and discuss geopolitical tensions in the last few years. Since 2009, the process of globalizing RMB has not been smooth sailing and progressed quite unevenly over time. Despite the strong performance in the early 2010s, the RMB is under-represented in the global market and its global role does not match China's economic might. The path of RMB internationalization is affected by both China's economic performance and geopolitical factors.

Using quarterly data on four commodity-exporting countries, we examine the explanatory power of real commodity prices to predict real effective exchange rates, paying particular attention to the separate roles of varied sectoral commodity prices during alternative time periods. We determine that the commodity price effect is nonuniform across countries and commodity sectors and varies over time. The use of fixed-weight price indexes or nominal exchange rates and commodity prices yields heterogeneous commodity price effects. Furthermore, the pattern of commodity price effects is influenced by the presence of macroeconomic conditions, effects of crises, and exchange rates of leading trading partners. These empirical results highlight the challenges associated with explaining diverse currency behaviors across different time periods using a single commodity-price-based exchange rate model. In addition, these findings suggest policymaking assuming stable commodity price effects difficult.

In this paper, we employ the input–output framework and recent global value chain (GVC) results to construct the index of foreign financial services adoption in manufacturing (FFSAM) that captures the role of foreign financial services in facilitating domestic manufacturing production. The FFSAM index shows that foreign financial services adoption by Asian economies has rapidly caught up with the Western world between 2007 and 2017. Asian economies tend to deploy more foreign financial services from high-income economies than low-income economies, and in high-technology manufacturing industries than low-technology manufacturing industries. Manufacturing industries that produce for domestic consumption and for exports tend to attract different groups of financial servicification providers. It is found that the FFSAM index is affected by the GVC position, financial institution factors, and financial market characteristics.

Based on the β-estimate that captures the interest rate differential effect in uncovered interest rate parity (UIP) regressions, we show that an empirical model that includes proxy variables for unobservable factors and allows for variables to have time-varying weights and parameters can reduce the UIP deviation. However, the specification that alleviated UIP failure does not reduce the variability of the β-estimate. The explanatory variables exhibit time-varying coefficient estimates and shifting importance across exchange rates. These findings corroborate the scapegoat theory and suggest that the difficulty of rectifying the empirical UIP failure can be attributable to the shifting roles of explanatory variables and time-varying parameter effects.

Using a dataset of 3108 dichotomous renminbi (RMB) misalignment estimates from 95 studies, we conduct a meta‐analysis based on Bayesian model averaging (BMA) to assess the effects of study characteristics on these RMB misalignment estimates. The findings demonstrate that selected study characteristic types systematically influence RMB misalignment estimates, especially time series versus non‐time series approach and co‐integration versus non‐cointegration. Though lean toward RMB undervaluation inference, results from the BMA meta‐analysis and the corresponding median probability model and synthetic practice evaluation do not offer a conclusive statistical inference on RMB misalignment. Specifically, the evidence varies with the configuration of model specification and does not corroborate the RMB undervaluation claim for the periods of “2009–2010” and “2011–2014.”