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December 18, 2025
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March 26, 2026
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April 30, 2026
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Abstract

Purpose — This study examines the nonlinear effect of Economic Policy Uncertainty (EPU) on China’s Renminbi (RMB) exchange rate.
Methods — Based on the monetary model of exchange rate determination and the behavioural equilibrium exchange rate model, a threshold autoregressive model was estimated with EPU as the threshold variable. Quarterly data from Q1 2005 to Q4 2023 were utilised.
Finding — Under different regimes, the effects of EPU, monetary factors, and macroeconomic factors on the exchange rate are nonlinear. The study also reveals significant differences in the volatility characteristics of exchange rate misalignment under low and high EPU conditions, supporting the hypothesis that EPU has a nonlinear impact on the exchange rate. Furthermore, when EPU is low, external shocks exert a stronger impact on the exchange rate than when EPU is high.
Implications — These results suggest that governments and policymakers can help investors anticipate market shifts by increasing policy transparency and reducing unnecessary policy changes, thereby maintaining economic stability.
Originality — By integrating EPU into a framework combining the monetary model and the BEER model and estimating a nonlinear threshold model, this study provides new evidence on exchange rate dynamics and misalignment under varying EPU regimes

Keywords

Economic Policy Uncertainty Exchange Rate Monetary Model BEER Model Threshold Autoregressive Model

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Copyright (c) 2026 Mengdi Zhang, Lee Chin, W.N.W. Azman Saini

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Author Biographies

Lee Chin, School of Business and Economics, Universiti Putra Malaysia, Serdang, Selangor, Malaysia and Department of Econometrics, Tashkent State University of Economics, Tashkent, Uzbekistan

Lee Chin is an associate professor in international economics at the School of Business and Economics, Universiti Putra Malaysia, and a research fellow in the Department of Econometrics, Tashkent State University of Economics, Uzbekistan.  Her research focuses on financial economics, housing economics and energy economics. She has taught more than 20 different courses at both the undergraduate and postgraduate levels, and supervised more than 100 undergraduate and postgraduate students. To date, she has published 140 journal articles, 4 books and 18 chapters in books. She is also the principal investigator of some projects and associate editors of several academic journals.

W.N.W. Azman Saini, School of Business and Economics, Universiti Putra Malaysia, Serdang, Selangor, Malaysia

W.N.W. Azman-Saini received his Ph.D. in Economics from the University of Southampton, U.K. His research focuses on foreign direct investment (FDI), R&D spillovers, financial development, and institutional quality. He has authored over 100 publications in various peer-reviewed journals, including Economics of Governance, Economics Letters, Economic Modelling, Emerging Markets Review, Emerging Markets Finance and Trade, International Journal of Emerging Markets, Journal of Banking and Finance, Quarterly Review of Economics and Finance, Research in International Business and Finance, South African Journal of Economics, The World Economy, among others.

How to Cite
Zhang, M., Chin, L., & Wan Ngah Wan, A. S. (2026). Do monetary policy and macroeconomic fundamentals matter under high uncertainty? Evidence from Renminbi exchange rate regimes. Economic Journal of Emerging Markets, 18(1), 29–40. https://doi.org/10.20885/ejem.vol18.iss1.art3
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