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Quote... "Suppose the PBOC buys a bunch of dollar-denominated bonds, using its dollar reserves. All else equal, what effect should this have on the yuan-USD exchange rate?" Quote... " I am having trouble seeing whether or why it might cause the yuan to depreciate". All else is not equal. To return to the original quantity of USD money ...


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The authors assume that the capital outflow is exogenous, i.e. not affected by the current exchange rate. Here's why (from a U.S. point of view): If I want to invest money in Mexico, then I want to know how much money I get back after one year. That is determined by: the rate of return in Mexico (in pesos); and how much the peso/$ rate changes. Regarding the ...


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