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Abstract

This article investigates the relationship between daily crude oil prices and excange rates. Functional data analysis is used to show the clustering pattern of exchange rates and oil prices over the time period through high dimensional visualizations. We select exchange rates for important currencies related to crude oil prices by using the objective variable selection method. The selected sample data exhibits non-normal distribution with fat tails and skewness. Under the non-normality of the return series, we use copula funtions that do not require to assume the bivariate normality to consider marginal distribution. In particular, our study applies the popular and powerful statistical methods such as Gaussian copula partial correlations and Gaussian copula marginal regression. We find evidence of significant dependence for all considered pairs, except for the Mexican peso-Brent. Our empirical results show that the rise in the WTI oil price returns is associated with a depreciation of the US dollar.

Abstract

This paper studies the Chinese monetary policy measurement problem. First, we construct a narrative index series to measure the PBC’s policy stance in 2000–14, based on the information abstracted from the PBC’s documents. Second, this narrative index is assessed in comparison with other composite indexes developed in the literature. Third, we study the nexus between the narrative index and individual quantitative policy variables such as policy instruments, operating targets, and intermediate targets. Our findings are twofold. First, the narrative-based and instrument-based indexes differ in the criteria for indicating what a policy shift is. Changes in the former reflect the PBC’s responses to its perceptions of real economic growth and inflation, while the latter records all the changes in the instruments, driven by both these two objectives and regular liquidity management as a result of sterilization needs. The second finding is that the PBC relies mainly on interest rates and the required reserve ratio in realizing its policy shifts. Yet, they cannot be good policy indicators, as a substantial amount of variation in them reflects influences from factors other than monetary policy. Neither base money nor broad money can measure the PBC’s policy stance, given that there is no clear link between them and policy shifts.