Analysis on the Exchange Rate Dynamic of RMB and Monetary Control under the Conditions of Open Economy
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| Title | Analysis on the Exchange Rate Dynamic of RMB and Monetary Control under the Conditions of Open Economy
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| Author | Wang Aijian and Lin Nan |
| Organization | College of Finance, Tianjin University of Finance and Economics |
| Email | gjiang@email.arizona.edu；panguanzhong@126.com |
| Key Words | Exchange Rate Dynamic; Capital Account Liberalization; Monetary Control |
| Abstract | The analysis on the exchange rate dynamic and monetary control under the conditions of open economy has been the core of international finance research. Based on Frenkel et al (2002), the paper develops the model analysis and indicates that the nominal exchange rate will face the more pressure of appreciation if the loosen monetary policy withdraws instantly. With the fast development of capital account liberalization, the RMB will face more depreciation pressure. With the help of display target variables, through establishing the OLS relations, and inducing the monetary variable, which comes from the cointergration analysis, the paper gets the satisfacted nominal exchange rate and exchange rate misalignment. The results show that there is no appreciation pressure at the moment. And using VAR model and ECM model, the paper shows that it is effective in the regulation of foreign exchange control and monetary policy tool’s operation, and there is overshooting lagging in exchange rate dynamic. |
| Serial Number | WP36 |
| Time | 2011-01-10 |
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