Abstract

According to the methods such as Johansen Cointegration Test, Error Correction Model (ECM) and Granger Causality Test, the empirical result in this paper shows the launching of the “Cross-Strait Currency Clearing Mechanism” prominently increase long-term equilibrium, long/short-term interaction and lead-lag relationship of the exchange rate between Renminbi (RMB) and New Taiwan Dollar (TWD). To sum up, it is proved that implementation of Memorandum on Cross-strait Currency Clearing Cooperation and the policy of “Cross-Strait Currency Clearing Mechanism” remarkably multiplies a positive synergistic fluctuation of the exchange rate between cross-Strait currencies in causality. It is suggested that transaction in U.S. Dollars decrease and transaction in RMB increase for cross-Strait economy and trade, investment and fund dealings.

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