Events

Dr Saleem Bahaj
Associate Professor of Finance and Economics
University College London

There is scant evidence of monetarist influences on inflation or on exchange rates. The peculiar institutional arrangement that keeps the exchange rate between the CNH and CNY pegged isolates the key monetary forces. Using data from onshore and offshore money markets in mainland China and Hong Kong, we find that exogenous increases in the supply of money depreciate the exchange rate, and that increases in the demand for money are accommodated by increases in the supply of different monies to keep the peg. A model of liquidity shows that successfully pegging an exchange rate requires a combination of interest rate and liquidity policies in a coherent monetary framework.