Still on China's exchange regime: the Euro and its role as an international anchor currency

Abstract

This study will demonstrate, through an econometric model in time series, if and how the Chinese basket peg has changed in relation to the weight that the European single currency holds within it. Specifically, utilizing Frankel’s (1994) econometric model, as revisited by Mele (2010) enriched by Kalman’s filter, our objective is to verify if the Eurozone crisis has affected the inner balance of the Chinese basket-peg, swaying it from the Euro towards a more favorable dollar. This research could be of great insight in predicting the effect of future crisis’, as a shift is already noticeable in our time series study spanning from 2010 till present day.