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Estimation of Hong Kong RMB Cash Stocks and Flows on Biomarker Method Modeling Research

Author: ZhangZuo
Tutor: ShiDaiMin
School: Southwestern University of Finance and Economics
Course: Quantitative Economics
Keywords: Biomarker Method RMB Cash Stocks and Flows Hong Kong Market Simulation
CLC: F832.6
Type: Master's thesis
Year: 2013
Downloads: 27
Quote: 0
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Abstract


In the back ground of Exchange-rate regime reform, Pilot RMB settlement of cross-border trade policy and comprehensive strength growing, RMB’s international status become higher and higher. The circulation scale of RMB is increasing in surrounding countries and region. The more of the RMB circulate, the more RMB issued by China government, which brings abundant seigniorage. As non-officialkey currencies for international settlements, the circulation of RMB enhances the bilateral economic trade, brings local economy development and produces international trade affect. RMB also reduces the trade links and costs with surrounding countries and region. RMB lowers the exchange rate risks, and enhance the country’s international reputation by its stable currency value. The primary reasons of RMB circulation are the trade of international finance and tangible economy. Meanwhile, the economic opening, stable development, bilateral trade and increasing personnel exchanges all promote the RMB cross-border circulation. What is more, on account of the comfortable atmosphere of opening-door policy and foreign exchange administration, and the booming underground economics, RMB circulates over the world prosperously.RMB cross-border circulation has been a large scale, and this large number of RMB circulation has affected the allocation of recourses and elements inside and outside of China. RMB cross-border circulation also affects the monetary policy formulation and its implement managed by People’s Bank of China, so does China macroeconomic regulation and control. Another significant effect of RMB cross-border circulation is the progress of RMB developing from regionalization to globalization. So, the estimation of RMB stocks and flows aboard is pretty essential.Various scholars and research institutions have been doing researches of RMB stocks and flows aboard from different perspective. However, the different method leads different estimates, and the differences of these estimates are very large. So which method is truly perfectly fit the open circulation environment of RMB aboard? The estimation is valid or not? We agree with the federal monetary affairs to use biomarker method to estimate the US dollar cash stocks aboard, and we think biomarker method is a good method to estimate the number of cashes. But the biomarker method the federal monetary affairs used is the original one, which is suit for closed circumstance. So, in this paper, we will emphasis on the feasibility and accuracy of the estimation of RMB cross-border circulation stocks and flows on biomarker method.In this paper, we deeply analysis the related research on stocks and flows of currency notes, and comment every method. We also discuss the feasibility of biomarker method on the estimation of Hong Kong RMB cash stocks and flows. Then we build the biomarker method model, which is fit for Hong Kong market, simulate the process of biomarker method by Matlab, and judge the accuracy of this model. At last, we present the ideas and problems of biomarker method implementation on Hong Kong market. The important work we have done as follows.Firstly, because there are different methods researched by various scholars and institutions, and the results are different too. We arrange and conclude these methods and classify them as direct method and indirect method. The direct method includes investigation method, seasonal method and biomarker method. The indirect method includes ARDL method, maximum likelihood method and M0/GDP trend method. We not only present the theories of these methods, but also comment how every method has been applied by other scholars and institutions and what the result is. We also evaluate the merits and weakness of these methods. Meanwhile we find biomarker method is a good estimation method for cash stocks and flows in despite of the difficulties to get right data.Secondly, we make a research on biomarker method. Summarizing multiple papers, we comb the development of the biomarker method, and present the primary two models of this method. One is for the closed population, which is Lincoln-Petersen model, and another one is for the open population, which is Jolly-Seber model. We also described and comment the example how Federal monetary affairs put biomarker method into practice. However, the biggest loophole of this instance is that they used the Lincoln-Petersen method, which is suit for closed population, to estimate the open population, while they didn’t take other channels for US dollar flowing into consideration. In order to make up for this weakness, we analysis the characteristics of RMB cash stocks and flows in Hong Kong market, and choose the Jolly-Seber model, which is suit for open population. We also discuss the feasibility to use it into Hong Kong market.Thirdly, we present all the assumed conditions both based on the primary model and the reality of RMB cash characters. We also set the statistic parameters and unknown parameters, and put forward the capture-history information form. As to the parameters of flows can not be estimated by primary model, we present the equations to calculate. There are some elements which will affect the modeling estimation. They are sample sizes, sample frequency, the ratio of inflow volume and stocks, the ratio of outflow volume and stocks, the ratio of outflow and inflow volume, and total number.Fourthly, we simulate the progress of biomarker method by Matlab to estimate the RMB cash stocks and flows in a Hong-Kong-market-similar circumstance. Then we compare the estimation value with the simulation value by standard deviation (SD) and variable coefficient (VC) to analysis the accuracy of the model. In order to analysis how the five elements, we have considerated above, affect the model accuracy separately, we design three steps to simulate. The first simulation is for closed population to analysis how sample size and sample frequency affect the model accuracy. The second simulation is for semi-open population to analysis how ratio of inflow volume and stocks affect model accuracy. The third simulation is for wild open population to analysis how ratio of outflow volume and stocks and ratio of inflow and outflow volume affect model accuracy.These three simulations mentioned above lead to such conclusions. First, the bigger the sample size is, the more accurate the model is. Second, the best sample frequency is5to7times, more or less sample frequency lead to less accuracy. Third, with the increase of the ratio of inflow volume and stocks, model accuracy is affected slightly. Fourth, with the increase of the ratio of outflow volume and stocks, model becomes much less accurate. Especially when the ratio is equal1or bigger, no matter how much the ratio of inflow and outflow volume is, the model accuracy is affected pretty badly. At last, we try to simulate the Hong-Kong-market-similar circumstance to know whether the model estimation is valid for RMB cash stocks and flows. Then we find that the estimation of cash stocks is valid, but the estimation of cash flows is not valid.Fifthly, all the research above is the preparation for biomarker method implementation. In order to put this method into practice, after summarizing the conclusions from simulations, we put forward the ideas how to implement biomarker method into Hong Kong market. We describe clearly about how to mark and build capture-history information form, when and how to take samples, how much markers should be made, how to control sample frequency while keep constant observations. At last, we present the unsolved problems for the researchers who are interested in it.

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