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I have been studying the relation between exchange rates and the inflation of the currencies, but I am far from understanding the most relevant factor in driving FX market players from pricing currency pairs. I dowloaded US inflation percentages and data for the price of the USD/CNY currency pair. I have used this data to create the following plot: Inflation percentage and USD/CNY currency pair.

If inflation is the rate at which the USD depreciates, why isn't the USD/CNY behaving in a more correlated manner in these data? An increase in USD/CNY implies more USD can be bought per unit of CNY, meaning the appreciation of the CNY with respect to the USD, i.e. the depreciation of the USD with respect to the CNY... But why is this value increasing in periods of decreasing inflation, such as the one preceding 1986? Is there any other factor missing in this picture? Maybe interest rates?

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    $\begingroup$ The exchange rates shown before 1994 are very unrealistic and not much trading took place at those rates. It was only in January 1994 when CNY was devalued to 8.7 to the dollar as part of the market economy reforms that the rate became somewhat realistic. The staircase steps leading up to that are tentative, cautious steps by the govt towards that reform and opening up (they are not free market fluctuations). Free market economic theories do not apply to the CNY from 1981 to 1994. Even now CNY is not freely convertible but is managed by the govt at close to market rates. $\endgroup$ – noob2 Mar 17 at 1:55
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    $\begingroup$ USDCNY is the CNY per USD exchange rate. When it goes up , dollar appreciates. $\endgroup$ – dm63 Mar 17 at 2:42
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Is there any other factor missing in this picture?

There is a large body of academic and practitioner literature on modeling exchange rates. Factors might include inflation, productivity, ToT, government deficits or debt, real rates... You might start by reading this piece, for example - https://www.imf.org/external/pubs/ft/wp/wp9867.pdf

You could also try the economics StackExchange.

HTH.

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