Should the Central Bank Reinstate the Counter-Cyclical Factor?——An Evaluation Based on Counterfactual Methods
The adjustment of the counter-cyclical factor is one of the important innovations in China's foreign exchange management,which helps to stabilize exchange rate fluctuations.This study uses daily exchange rate data from 22 countries included in the CFETS to assess whether China reinstated the coun-ter-cyclical factor in 2022.It then employs a regression control method to forecast the counterfactual out-come of RMB exchange rate fluctuations had China not implemented the counter-cyclical factor,thereby estimating its impact on the RMB exchange rate.The findings indicate that the reinstatement of the coun-ter-cyclical factor in China's foreign exchange management in 2022 significantly suppressed bidirection-al fluctuations in the exchange rate.Therefore,it is recommended that the Central Bank further promote the marketization process of the RMB exchange rate.In the face of severe external negative shocks,the counter-cyclical factor could be reactivated as a non-conventional exchange rate management tool to maintain basic stability of the RMB exchange rate at a reasonable equilibrium level,seize the strategic initiative to prevent and defuse risks,and help promote high-quality economic development.
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