Exchange Market Pressure in China: A Re-Examination Based on Girton-Roper Monetary Model

Abstract

For China’s inefficient foreign exchange market, as the foreign exchange market is difficult to clear in time, so the foreign exchange market pressure always exists. Therefore, the in-depth study and discussion of China’s foreign exchange market pressure issue has important practical significance. This paper applies Lance Girton and Don Roper’s monetary model of exchange market pressure to China’s experience. The purpose of this paper is mainly to test whether the excess supply of money in China can be absorbed by some combination of the change in exchange rate and the change in foreign reserves. The results of empirical analysis indicate that the basic theoretical proposition is accordant with the practice.