Do fluctuations in the exchange rate and interest rate contribute to green growth?

Achieving a clean and sustainable environment requires conscious and deliberate efforts from policymakers, both from technical and market perspectives. In this case, markets must be functional and less susceptible to shocks, with adequate financial resources, since green growth (GG) is a highly capital-intensive process. Therefore, this study examines the impact of positive and negative fluctuations in both the exchange rate and the interest rate on GG in China from 1990 to 2022 using the quantile-on-quantile regression approach of Sim and Zhou (2015). The results showed a negative correlation between positive fluctuations in the exchange rate and GG at the lower and middle quantiles. This outcome suggests that GG and positive fluctuations in exchange rates migrate in opposite directions. On the flip side, GG and the negative fluctuations in the exchange rate have a weak and positive relationship in some lower quantile combinations. At the lowest quantile (0.2q) of GG and interest rate, a substantial positive correlation between the two variables is seen. At the middle quantile (0.5q) of GG and interest rate, a substantial positive correlation exists between both variables. Furthermore, a substantial positive correlation between GG and positive fluctuations in interest rates was seen when the graph was examined by quantiles. Therefore, policymakers in China ought to concentrate on creating a strong foreign exchange market that can regulate the renminbi’s fluctuation in relation to other currencies.