The Research On The Exchange Rate Volatility Of RMB Around The New Mechanism Of Exchange Rate Forming

Since People's Bank of China announced the start of implementation of a market based on supply and demand, with reference to a basket of currencies to regulate a managed floating exchange rate system on July,21,2005.The exchange rate fluctuations of the RMB exchange rate gradually increases. The exchange rate as the relative prices of two currencies,which volatility is bound to affect the business activities of the import and export enterprises, or even disrupt a country's economic order. In this paper, both before and after the change in all major currencies such as the dollar, euro and the yen on the fluctuations of the RMB exchange rate was studied by measurement methods. Followed by related policy recommendations to preventative effectively the fluctuations of the exchange rate.The article elaborated firstly the selected topic background and the significance, the literature review. Then the related exchange rate volatility theory and the measureme thod: standard difference method and ARCH model method were introduced.Then on the basis of analyzing and comparing advantages and disadvantages of various risk measurement methods, it proved that ARCH fitting model for the time series of the exchange rate yield was more reasonable. Combined with the data of the dollar, the euro and the yen on the renminbi exchange rate on the foreign exchange market around the new mechanism of exchange rate forming, the various exchange rate yield sequence was fitted and contrasred by GARCH model, GARCH-M model TGARCH model and EGARCH model respectively. Finally a certain period around the new mechanism of exchange rate forming of the dollar, the euro rate of the renminbi exchange rate fluctuations were forecast respectively according to the selected fitting model. Again paired samples t-test of the two groups fluctuations in rates were carried on, and we find that the reform of the new mechanism of exchange rate forming has changed the fluctuation rate significantly.Finally, according to the reality of the renminbi exchange rate fluctuations intensified, the author proposed the following measures to stabilize the exchange rate: Firstly, establishing a reasonable range of exchange rate fluctuations; Secondly, improving and perfecting the government's intervention mechanism;Thirdly, maintaining the growth of reserves coordination with the size of the overall economy; Fourthly, to closely monitor the international hot capital; Fively is to cultivate a sound foreign exchange market.