The Research On Nonlinear Behavior And Effectiveness Of Foreign Exchange Intervention

As an important variable in the international financial field, exchange rate and its stability play important parts in sustainable and healthy development of the national economy. Up to now, foreign exchange intervention has become an important tool to manage exchange rate, and been focused widely by policy makers and economists. Research on the behavior and effectiveness of intervention, acquiring its characters and exploring advanced approaches to improve its effectiveness, are significant to upgrading central banks'intervention level and constructing more effective intervention regime, which can guarantee the stability of exchange rate and development of economy.This paper studies following the way of theory introduction, qualitative analysis and quantitative study. Based on the review of basic theory, related research, and international experience of foreign exchange intervention, this paper combines theoretic and empirical approach, studies the nonlinear behavior and effectiveness of intervention through establishing nonlinear model, introducing data mining technology, chaos control method, simulation and econometric test methods, and acquires several significant conclusions.This paper first studies the foreign exchange intervention reaction function. As an important tool to describe intervention behavior of central banks, the reaction function has many different models. This paper summarizes the advantages and defects of these models, from the view of the need to explaining the nonlinear character of intervention, and acquiring higher precision simultaneously, provides a new nonlinear FTR model. Experimental results based on Japanese intervention data demonstrate that, comparing with linear model and two-regime TR model, the FTR model provided by this paper has higher precision. Besides, through analyzing the estimation results of FTR model, this paper acquires valuable conclusion about the characters of intervention behavior such as intervention motivation, important market factors in considering, intervention target, and so on. However, reaction function can acquire statistical characters of intervention behavior only, but can't mine all the rules concretely. So this paper continues the research by introducing data mining idea, and proposes a rule acquiring method based on nonlinear rough set theory. Experimental results demonstrate that, this method can mine a great deal of effective rules, which take the related market factors as antecedent, and take the intervention decision as consequent. This method describes intervention behavior more completely. Then this paper focuses on the research of intervention effectiveness. As everybody knows that the effectiveness of foreign exchange intervention has always been considered as a controversial problem in financial area for many years. In order to discuss the problem deeply, this paper analyzes the causation and proposes a new simulation analysis approach based on chaos control. Simulation results demonstrate that, based on the expanded Dornbusch exchange rate model, under the guidance of self-adaptive chaos control method, the central bank can through seeking the suitable intervention degree self-adaptively, control the chaos behavior of exchange rate, and stabilize it finally. This result provides not only theoretical support for effectiveness of intervention, but also reference for intervention policies making. At last, in order to improve the effectiveness of practical intervention, this paper starts from the key factors of intervention policy, and tests the relationship between effectiveness and these factors, including intervention quantity, manner, frequency, and uniting with other countries. Empirical results demonstrate that, these factors above can influence the intervention effect directly, and each factor has different functions under different targets of changing exchange rate level and reducing exchange rate volatility. The results can provide reference for central bank to master these factors better and make more effective intervention policies.Based on above studies, this paper analyzes the features of RMB exchange rate formation mechanism, discusses the actuality and prospect of intervention in China, at last provides advices for upgrading intervention effectiveness from the aspects of completing exchange rate market, enhancing central bank's capability and authority, making suitable intervention strategies, and so on.