Exchange Rate Shocks And Asset Price Fluctuations

In recent years,the instability and uncertainty of the international situation have increased significantly,the economic environment has become increasingly complex,the growth rate of international trade slow down.Today's world is experiencing a great change that has not happened in a century,so exogenous shocks have increasingly became a potential threat to the internal stability of China's economy.At the fifth plenary session of the 19th central committee of the Communist Party of China,the central committee issued a call for accelerating the construction of a major domestic cycle as the main body,and making the domestic and international dual cycles reinforce each other to promote a new development pattern.Under such general circumstance,the RMB exchange rate,which serves as the important carrier of smoothing domestic and international dual cycle,is of great strategic importance to prevent the potential financial risk.This dissertation comprehensively applied theories and methods such as financial market relevance theory,intermediary effect test,non-linear granger causality test,time-varying parameter nonlinear models,and conditional risk measurement under extreme value theory.Focusing on the exchange rate market,stock market and real estate market,the paper carried out research on the law of price fluctuations,the influence mechanism,and the risk spillover of the return.Finally,based on the research conclusions on the influence mechanism and risk spillover,the dissertation made suggestions on the deepening reform of the RMB exchange rate formation mechanism.Based on the above research context,the main work and innovative research of this dissertation can be summarized into the following aspects:First of all,based on the classical theoretical analysis of exchange rate and asset price fluctuations,combined with the analysis of domestic and foreign market environment,the dissertation analyzed the volatility law of exchange rate of RMB,the CSI 300 index and average price index of first,second,and third-tier cities,including descriptive statistics,normal distribution test,split feature analysis,and high-order moment volatility feature analysis.The research results show that :(1)the volatility of research variables have their own characteristics,specifically,after splitting the variable fluctuation curve,it was found that the seasonal component of house price fluctuations is more obvious,and the uncertainty component of exchange rate and stock price fluctuations is more significant.(2)there are also many similarities,the volatility of exchange rate,stock price and house price is biased,but all have certain periodic characteristics.(3)the empirical results from the GARCHSK model prove that the volatility variances of the five sets of data have significant time-varying characteristics in high-order moments,which provides important enlightenment for our later discussion on the correlation between variables: we need to study the linkage relationship between variables from the perspective of time-varying characteristics.Secondly,the dissertation summarized the classical and emerging theories of the linkage relationship between exchange rate and asset price,and on this basis,conducted a detailed analysis of the transmission path of exchange rate and asset price according to the internal logic of direct transmission and indirect transmission.According to the theoretical deduction,the impact of exchange rate volatility on asset prices can be directly transmitted through the three paths: investors' investment demand changes under the influence of wealth effects,the conversion of investment choices under risk aversion,and the discounted valuation of assets' cash flows,or can be transmitted indirectly through cross-border capital flows,the psychological expectations of investors and the regulation of monetary policy at the credit level and liquidity effect level.After that,the dissertation used the mediation effect and non-linear granger causality test method to test each transmission path quantitatively.The data results are not same as the theoretical deductions and the main conclusions are as follows:(1)Although the impact of exchange rate fluctuations on cross-border capital flows is significant,but cross-border capital flows are not significant as an intermediary variable of exchange rate influencing asset prices,indicating that in China,contrary to traditional understanding,high-frequency inflows and outflows of cross-border capital are not directly related to the price fluctuations of the stock market and housing market.(2)The expansion of credit lines does not have a significant mediating effect on the process of exchange rate affecting stock prices,but has a significant mediating effect on the process of exchange rate affecting house prices.Among them,the effect on house prices in first-tier and second-tier cities belong to the partial mediating effect,however,the effect on house prices in third-tier cities belong to the complete mediating effect.(3)M2 has a significant mediating effect on the process of exchange rate affecting stock prices and house prices,which proves that China's quantitative monetary policy actually weakens the impact of exchange rates on asset prices.(4)Investors' expectations have a significant mediating effect on the exchange rate's impact on stock prices and house prices.Similarly,the investors' expectations have a complete mediating effect on the process of exchange rate affecting house prices in third-tier cities,which means that there is no significant direct correlation between exchange rate changes and house price fluctuations in third-tier cities,but the influence is completely transmitted through intermediary variables.In addition,after a detailed analysis of historical events such as the formation and collapse of asset price bubbles in Japan,the Southeast Asian financial crisis and the Russian ruble crisis,the dissertation found that there is no simple one-way causal relationship between exchange rates and asset prices,more specifically,it cannot be said that exchange rate appreciation will definitely lead to asset prices appreciate and exchange rate depreciation does not necessarily correspond to asset prices plummeting,but exchange rate under pressure is an important reason for the imbalances of asset prices.Based on the actual situation of China,the dissertation used a vector autoregressive model with time-varying parameters to fit the data(after the RMB exchange rate reform in 2005).The results show that:(1)The depreciation of RMB exchange rate has indeed brought a negative impact on stock prices,but the impact on house prices show differences,Specifically,the impact of exchange rate depreciation on house prices in second and third-tier cities is negative,but the impact on house prices in first-tier cities is positive.(2)The results from the time-point impulse response curve show that the impact of exchange rates on asset prices show different characteristics at different time points.From the perspective of different time points of exchange rate'reform,the response of unit money supply to the impact of exchange rate depreciation has a better risk hedging effect as the progress of exchange rate reform,which means that,the effectiveness of monetary policy on exchange rate risk'control has been enhanced.From the perspective of different time points of the stock market's rise and fall cycles,in a bear market,the negative impact of exchange rate depreciation has been magnified,monetary policy is also less effective as a hedge against exchange rate risk,and the bull market is more effective in resisting the risk of exchange rate's depreciation.Therefore,the paper argues that mature and efficient capital market investment structure should be improved to support the building of a long-term prosperous capital market.At the same time,we should strengthen precise regulation to further improve the effectiveness of monetary policy regulation.Furthermore,the dissertation summarized the historical changes of the international exchange rate rules,and combined with the official classification of the exchange rate system by the International Monetary Fund,the dissertation accurately positioned the changes of the RMB exchange rate system after the exchange rate reform in 2005,and on this basis,with a retrospective-prospective thinking,the possibility of deepening the reform of the RMB exchange rate system was discussed from the perspective of stabilizing domestic asset prices and preventing risks.In the investigation of the causes of the RMB central parity's change,the dissertation constructed a vector error correction model.In addition,the dissertation constructed the EVT-Copula-CoVaR model to measure the extreme risk spillover effects of the RMB exchange rate and asset price returns in different intervals.Based on the extreme theory,and the GPD fitting is performed on the superthreshold data of the sequence.The results show that :(1)Non-market intervention measures still greatly affect the pricing process of the RMB central parity.From the variance decomposition,in the pricing process of the RMB central parity,the influence of market-based intervention and interest rate spread can be basically ignored,and the influence of its own fluctuations is significant.Therefore,it is reasonable to speculate that non-market-based intervention still exerts a great influence on the pricing process of the RMB central parity.(2)The time to deepen the reform of RMB exchange rate has come.The net risk spillover effect has experienced a process of first strengthening and then weakening.In general,with the gradual deepening of RMB exchange rate's reform,risk spillovers are always within a controllable range.Based on this,the paper believes that from the perspective of preventing capital market risks,the window period for deepening the RMB exchange rate reform has arrived,which means that we can further reduce the non-market intervention in the pricing process of the RMB central parity rate and liberalize the fluctuation range of the RMB exchange rate gradually,in order to make the pricing process of the RMB exchange rate closer to market rules.