Foreign Exchange Intervention Is Expected Pathway And Macroeconomic Stability

All the nations haven't refused foreign exchange intervention neither under fixed exchange rate system nor flopped exchange rate system. The scale and frequency have been enhanced greatly especially after the Britton wood system's disorganization. The foreign exchange cointervention had reached a new height from the 1985's "Plaza Protocol" to 1992's money crisis.The research on foreign exchange intervention has increased with the use of intervention from the basic theory to different foreign exchange intervention channel, from the effectiveness of foreign exchange intervention to the mechanism of the effective channel, from the fluctuation of foreign exchange to the macroeconomics effect, from the asset portfolio channel to the expect channel, and so on.Although the international researches about foreign exchange have evolved greatly, it is still on the beginning. This paper models the Chinese foreign exchange intervention expect channel, macroeconomics and employment rate with the help of international research paper. And we use Chinese data to check it. Though the international comparative research, including developed and developing countries', we can get the system path of china. The path will get ahead from the middle class partial to coordination equilibrium to the middle class partial to separation, and make progress in equilibrium of separation under the condition of market economics development, democracy sanity and financial market perfect. The remaining part of the paper programs as flowing:The first part of the paper is introduction. It includes basic theory, point background, research method, innovation and insufficient. The basic theory mainly describes the type of foreign exchange intervention: sterilized intervention and unsterlized intervention. Two types of intervention channel include asset portfolio and expect channel. Basic theory even relates the effectiveness and serviceability of intervention. The international background is mainly about affirm of research. The domestic background is mainly about the history of foreign exchange.The second part of the paper is literature review. It includes the, expect channel of foreign exchange intervention, the relation and evolvement between the two channels, the game theory about intervention, relation between intervention and macroeconomics. The part of asset portfolio channel mainly discusses the framework of intervention together with the practice of central bank. These literature reviews have theory and practice value to this paper.The third part of the paper is the model between foreign exchange intervention and macroeconomics. It includes policy analysis framework under open economics, suppositions about the model, equilibrium of coordination and separation. The policy analysis framework releases macroeconomics research model. And the suppositions provide market microstructure framework for the market for foreign exchange that presents two important features: (â…°) it allows identification of a clear link between the intervention operations of central banks, agents' expectations, exchange rates and the employment level; (â…±) it produces a series of testable implications which are consistent with a large body of empirical evidence concerning the statistical relations between intervention operations, exchange rates and monetary aggregates.The conclusion is that equilibrium of separation is more effective than equilibrium of coordination.The forth part of the paper is empirical research on the model between foreign exchange intervention and macroeconomics. The purposes of empirical literature review have two: the first is study the method of empirical walter; the second is study the data selection. There are only three countries (American, Japan and Germany) release foreign exchange intervention data. We have to find the correlated data series. So we choose the net increment of foreign exchange reserve as the intervention data according the empirical literature.The main conclusion of empirical research accords with model. The rise of intervention increases net income of central bank; the rise of intervention decreases the variation of economics development. It has negative correlation with GDP because our economics is in upgrading; the rise of intervention blocks employment.The fifth part of the paper is policy suggestion about the model. It includes foreign exchange intervention policy target and direction ideology, foreign exchange rate system, foreign exchange regulation system.The policy target accords with monetary policy target class. Direction ideology emphasizes Chinese own economics conditions. Foreign exchange rate system required WTO regulation. Foreign exchange regulation system emphasizes "Market Marker" system reform.