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Study on the Relationship of Foreign Exchange Rate in Greater China Area

Author: WuBingZe
Tutor: JiangDianChun
School: Nankai University
Course: World economy
Keywords: Exchange rate reform Copula function Contagion effects CCC-GARCH DCC-GARCH
CLC: F832.6
Type: PhD thesis
Year: 2013
Downloads: 32
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The role of exchange rate is getting important, through the China, Taiwan, and Hong Kong (hence Greater China area.) increasingly open trade policies and economic and trade activities. Therefore, the motivation of this dissertation is to discuss whether the linkage between the exchanges rate regime and due to political and economic changes in different spatial and temporal differences? Especially before and after the change of RMB exchange reform, how the degree of correlation between New Taiwan Dollar (NT) for Hong-Kong Dollar (HK), against Ranminbe (RMB), and the NT to RMB? Due to the past literature does not discuss the dynamic correlation of exchange rate among the Greater China area. Our empirical study is different from the previous application of time-series pattern analysis mode; we further consider the static and dynamic Copula correlation function based GARCH model to investigate the linkage between the exchange rate dynamics.In our empirical study, we apply the Greater China area’s exchange rates data and the macro economics variables and found that through bivariate CCC-GARCH and DCC-GARCH model to evaluate spillover effect of the variance of returns volatility between the Greater China area. It appears that the exchange rate movement is not high degree of correlation in full sample. But it has a significant difference before and after the RMB exchange reform. The correlation is lower before the exchange rate reform, but the RMB and NT relevance significantly improved after the exchange reform. The RMB exchange rate and the Hong Kong dollar exchange rate is not high correlation.In addition, the Copula scatter plot analysis result from the full sample reveals that the average rank correlation between the Greater China area is not high. However, if the area is divided into before and after the exchange rater reform, after the reform is still relatively high. Also can be seen through the Pearson correlation matrix. The correlation between RMB and Hong Kong dollars is lower than NT dollar and RMB after the exchange rate reform.Through five kinds of static Copula functions, including Normal Copula, Student Copula, Clayton Copula, Gumbel Copula and Frank Copula, we can found that in full sample and before the reform period, the exchange rate movements between Greater China area are not high degree of correlation. However, the correlations have a significantly increase after the RMB exchange rate reform.On the other side, the contagion effect test results show that the RMB against the NT dollar or RMB against the Hong Kong dollar has a significant effect after the exchange rate reform. It implies that the change of RMB exchange rate policy will affect the NT and HK dollar.In final, we discuss the contagion probability. The probability analysis aims at the difference of contagion effect when has a positive and negative new impact. We can see the results for the empirical results; the positive and negative shocks will make a significant difference. Further to said, the shock of RMB against the Hong Kong dollar is more significantly higher than the full sample or before the reform. Finally, policy implications reveal that the results can provide the central bank of Greater China area as a reference in exchange rate policy. Especially Taiwan and Hong Kong, because of the small size than mainland China, it will suffer a great impact as China’s exchange rate policy regulation change.

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