The Research Of RMB Exchange Rate Volatility Based On Financial Volatility Model

RMB exchange rate has always been the hot research issue in domestic and even the international financial field. With China's rapid economic development,its economic power continues to strengthen the yuan in the international trade and investment activities of people in the increasingly important role. Since July 21,2005 the People's Bank of China announced the introduction of a managed floating exchange rate regime based on market supply and demand and with reference to a basket of currencies, The RMB exchange rate fluctuations in major currencies is not only more frequent, but also more severely,The RMB exchange rate volatility behavior also increasingly attracted widespread attention at home and abroad.Based on the actual situation of China's foreign exchange market,This paper analyzed the characteristics of the RMB exchange rate return series and found that this series has some characteristics like fat tai, volatility clustering and obvious heteroscedasticity effects. Therefore, This paper·introduced the generalized conditional heteroskedasticity model (GARCH model) and the stochastic volatility model (SV model) to describe the dynamic process of the RMB exchange rate fluctuations. On this basis, This paper also introduced the risk premium, leverage effect and other factors into the standard GARCH model and the SV model,and used the expanded models to fit the return series of the RMB exchange rate, and compared the fit goodness of the two type models.The results show that, EGARCH-M model and the leverage SV model can better describe the characteristics of the volatility of the RMB exchange rate, the RMB exchange rate return series has some features like fat tail, volatility persistence, leverage effect and risk premium.According to the empirical results,This paper put forward some policy recommendations as follows:to develop a reasonable range of exchange rate fluctuations;improve and perfect the mechanism of central bank intervention;foster a sound foreign exchange market;improve the RMB exchange rate formation mechanism and to guide rational expectations.Hoping to provide a theoretical basis for making some relevant foreign exchange policies in China, and provide some consults and references for the reform and development of China's exchange rate system.