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Frontiers of Economics in China

Front. Econ. China    2006, Vol. 1 Issue (2) : 207-219     https://doi.org/10.1007/s11459-006-0005-6
The directions of FDI and the self-intensifying expectations of the exchange rate and the effectiveness of sterilized intervention
LI Tiandong1, XUE Shaoqiang2, ZHU Qi3
1.Institute for Financial Studies, Fudan University, Shanghai, 200433, China; 2.The Economic School, Fudan University, Shanghai, 200433, China; 3.The State Administration of Foreign Exchange, Beijing, 100037, China
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Abstract In this paper, we develop the Renminbi s dynamic model to analyze the relationship between the flow directions of foreign direct investment (FDI) and the exchange rate s expectations on the basis of distinguishing the real interest rate from the desired interest rate. We find that the exchange rate expectation has a self-intensifying mechanism, which could have a reverse effect on the country s macroeconomic stabilization. We discuss the issue on how expectation impacts the macro economy and then analyze the conditions of successful intervention, which is helpful for policy management.
Issue Date: 05 June 2006
 Cite this article:   
XUE Shaoqiang,LI Tiandong,ZHU Qi. The directions of FDI and the self-intensifying expectations of the exchange rate and the effectiveness of sterilized intervention[J]. Front. Econ. China, 2006, 1(2): 207-219.
 URL:  
http://journal.hep.com.cn/fec/EN/10.1007/s11459-006-0005-6
http://journal.hep.com.cn/fec/EN/Y2006/V1/I2/207
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