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Feasibility Study on the Maintenance of Renminbi Pegged Parity

Author: SunHuaZuo
Tutor: WangLinSheng
School: University of Foreign Trade and Economic
Course: International trade
Keywords: Exchange rate regime Trilemma Appreciation pressure Automatic stabilizers Policy interventions
CLC: F832.6
Type: PhD thesis
Year: 2005
Downloads: 627
Quote: 1
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Abstract


In this paper, the choice of exchange rate regime and exchange rate levels remain two perspectives, analyzes on the current exchange rate under the pressure of RMB appreciation parity in sustainability, noting that keep the exchange rate parity is in line with the realities of China economic constraints, in line with theoretical logic of rational choice , and gives the appreciation pressure to resolve financial system reform and policy intervention recommendations. This paper briefly reviews the history of the international exchange rate system, China's exchange rate reform process and the status quo. According to the IMF exchange rate regime classification of exchange rate regime will be summed up as \Since 1998, the exchange rate of RMB benchmark average monthly volatility never exceeded 0.02% lower and upper bounds of the fact that the current Chinese tradition of actually implementing a pegged exchange rate arrangement, rather than the \Chapter, Article 33), \This article about China's exchange rate regime is based on the analysis of the real exchange rate regime based on classification. This paper summarizes the relevant support and oppose the fixed exchange rate regime or a floating exchange rate regime argue that the controversy lt; WP = 4 gt; is built around two kinds of exchange rate regime launched their advantages and disadvantages, due to the lack of a unified economic system theoretical support, these arguments present not yet reached the same conclusion can not be sure what kind of exchange rate regime is optimal. In the empirical evidence, because according to some researchers Governments official exchange rate system to study, some researchers announced exchange rate regime based on IMF study, other researchers according to their exchange rate regime classification designed to study, making the results lack of comparability, there is no consistent answer. However, this inconsistency is precisely to support the fact that, in practice, most countries the implementation of \floating. In order to overcome the traditional fixed or floating exchange rate regime excellence debate lacks theoretical support for a unified economic system deficiencies, this paper draw on classic modern open macroeconomic model, from two kinds of exchange rate regime stability and economic operation of the automatic effect of two policy control aspects of a comparative analysis, improve the exchange rate regime of systematic evaluation. In automatic stability, this paper based on the total supply and demand open economy model (AD-AS model), using comparative static analysis methods, in the same economic structure, the same form and size of exogenous shocks, without policy intervention conditions, based on a fixed exchange rate regime and the floating exchange rate regime under the economic system output and price fluctuations, comparative economic systems capable of automatic stabilizers. This study found that, in the international capital market is relatively broad, the domestic capital market and foreign exchange market is relatively small, when the economic system appears exogenous money demand shocks, aggregate demand shocks, aggregate supply shocks, the fixed and floating exchange rate regime exchange rate regime, respectively, in terms of output stability and price stability have different advantages, no one exchange rate regime in all cases have performed the best. But for China's economic structure transformation characteristics and possible sources of exogenous shocks, the fixed exchange rate regime with respect to the floating exchange rate regime should be more preferable. In policy control effect, this paper Mundell - Fleming Model in both exchange rate system is completely balanced general solution, and a fixed exchange rate system, the general solution of short-run equilibrium, compared to a fixed exchange rate regime and the floating lt; WP = 5 gt; fixed exchange rate system, the effect of macro demand management policies. Pointed out that in the short term, a fixed exchange rate regime and the floating exchange rate system, the use of macro-fiscal and monetary policies for demand management, in general, have the effect; in the long term, a floating exchange rate system, fiscal and monetary policy effect can be maintained; monetary policy under a fixed exchange rate regime Although the failure, but the exchange rate policy, monetary policy may be replaced to maintain price stability, making the policy objectives and policy instruments still satisfy the match between \Therefore, policy control effect, a fixed exchange rate regime and the floating exchange rate regime is still hard to Zhong Bo. For international and domestic prevalent exchange rate regime choice on the basis of \, according to the Mundell - Fleming Model circumstances in capital mobility and capital does not flow at the special case of solutions, as well as Mundell - Fleming Model dynamic expansion - Dornbusch exchange rate overshooting model, the authors note that kind of give up entirely in capital flows can be guaranteed autonomy of monetary policy and exchange rate stability coexist, or give up exchange rate stability can be guaranteed autonomy of monetary policy and capital flows have both completely simple reasoning, is actually \the result that the truth becomes a fallacy. \Based on the above analysis, the authors further noted that a country's currency selection is not facing the financial system independence of monetary policy, exchange rate stability and capital flows entirely \the lack of the \A fixed exchange rate regime or a floating exchange rate regime choice is a long-term arrangement, the policy can not be based on short-term performance to determine the trade-offs, but should be considered in a long historical period, a fixed exchange rate regime or a floating exchange rate system more conducive to economic continued to grow. As China's financial market development is far from mature, the inherent fragility of financial institutions, currently pegged exchange rate arrangement is obviously not quit a good time. Based on the January 1994 to September 2004 quarterly data, the application of vector autoregression model GE lt; WP = 6 gt; Granger causality method of testing the independence of monetary policy in China and the effect of an empirical test. Test results showed that the quantity of money rate is not Granger cause, negating the pegged exchange rate regime restricting China's monetary policy independence hypothesis. This shows that China's capital markets and international capital markets exists between man-made or natural barriers, and the central bank's sterilization operations are effective. In the right output (real GDP) and price (CPI) the impact, we find that the effects of monetary policy instruments mainly by the amount of money to play M0, M1 quantity of money and the interest rate policy of no significant effect. In the absence of sufficient evidence to prove there is a serious underestimation of the RMB exchange rate, pegged exchange rate?

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Exchange rate,foreign financial relations
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