The Comprehensive Model Of Exchange Rate Determination With Multi-factors

Exchange rate, which is one of the core contents in international finance field, is not only influenced by national economic situation, inflation, interest rate and economic policies but also has an extensive impacts on national economy. Among these impacts, some are active and others negative. When exchange rate fluctuates greatly, its impacts on economic society is great, even panicky. Only finding the economic system which governs the movement of exchange rate and the relationship betweent exchange rate and other economic factors, can we develop a model to grasp the rules of exchange rate's movement, to predict its movement and estimate its shock to economy. By doing this, negative impacts can be reduced. Therefore the study of exchange rate not only has important significance of thoery but also the significance of reality. As for RMB which is getting more and more internationalized and can not be fully exchanged under the capital account, the study of exchange rate can be used for reference by the study of RMB's exchange rate.This paper, based on the study of modern theories of exchange rate determination, finds the evolution process of theory of exchange rate determination has five rules: it has a close relationship with the evolution and development of monetary standard system and international finance system; it can be divided into long-term theory of exchange rate determination and short-term theory of exchange rate fluctuation, fundamentalism school and non-fundamental school respectively according to time term and contents; main theories of exchange rate determination has apparent relationship of inheritation and innovation; and many economic theories meet and form a theory of exchange rate determination.Enlightened by the above rules, the author, in this paper, tries to combine the long-term approach with short-term approach and divides spot exchange rate into two parts: parity and fluctuation firstly. This paper also develops a new model by analyzing fundamentals. Then it formulates a new short-term theory of exchange rate fluctuation. Finally, the author put long-term theory of exchange rate and short-term theory of exchange rate fluctuation together and gets a equation set which is so-called comprehensive theory of exchange rate determination with multi-factors.In order to examine its correctness, the author makes an empirical analysis based on key currencies——US dollar and Canadian dollar, and draws a conclusion that as for the exchange rate between USD and CAD, it can be illustrated by fundamentals generally; it has a close relationship with business cycle; And it is very sensitive to currunt account item.