Exchange Rate Regime Choice

The exchange rate regime is an important component of the economic system. It is important for the country to choose an appropriate exchange rate regime to ensure the economic growth. Although we can learn from the successful examples of other countries, the right choose can only be made after we take all the influential factors into account.Currently, the present exchange rate system has many problems. The movement of RMB exchange rate still lack of adequate flexibility, which constrains the effectiveness and independence of monetary policy in China. The price of RMB hasn't exactly reflected the relationship between the market supply and demand, which may influence the allocation of social resources. The undeveloped financial market can't provide the market participants with sufficient financial instruments to avoid exchange rate risk, so we have a lot of work to improve the supporting measures for the exchange rate regime reform. These are the problem we need to solve on the way we move forward. The transition from traditional pegged system to managed floating system is just a small but important step in the history of exchange rate regime reform.The main content of the whole paper is structured as follows:Section 1, introduces research background ,thinking and method of this paper, and defines some basic conceptsSection 2, reviews and summarizes the theory about the choice of exchange rate regime. This part is divided into three parts: traditional theories,new theories on the choice of exchange rate regime and researches on Chinese exchange rate regime arrangement. The traditional theory of exchange rate regime includes argues between fixed peg arrangement and floating arrangement, theory about the exchange rate regime with appropriate financial policies, economic structural characteristics on the choice of exchange rate regime and other theory supporting intermediate regimes. Since 1990s, currency crises worldwide have led to a new climax in this field. Experts and scholars begin to re-examine theories on the choice of exchange rate system from the view of sustainability and crisis prevention. The most controversial theory "Hollowing-out hypothesis of intermediate regimes" was put forward in that period.Section 3, using the IMF de facto classification, the paper analyses the ratio change of IMF members on strictly fixed exchange rate regime, middle exchange rate regime and free floating exchange rate regime, and finds no support for "the Hollow hypothesis". The ratio change of exchange rate regimes in developing countries, the cost of using strictly fixed exchange rate regime and the constraints of using floating exchange rate regime prove that on the long run, the middle exchange rate regime is still the choice of many developing countries, and exchange rate arrangement diversification is still dominant characteristic of international exchange rate regimes. As the biggest developing country, China should choose the middle exchange rate regime because at present, like most of developing countries, Chinese financial market is underdeveloped, and the middle exchange rate regime benefits the stability and the development of domestic economic.Section 4, with the inspiration got from Wen xuan's model about choosing exchange rate regime among the extremes and the middle regimes and researches on the historical data of 157 countries from 1999 to 2008; this section sets up a multilevel nominal response model to reflect how the theoretical factors influence the exchange rate arrangement. According to the result of demonstration, this section gives some comments on China's exchange rate arrangement reform.Section 5, Conclusion of this paper...