Exchange Rate Regime Choice And Economic Growth In China Empirical Research

On July 21^st , 2005, the People's Bank of China made a momentous announcement that "China will reform the exchange rate regime by moving into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currency". In recently years, RMB exchange rate regime reform has become the hot topic for domestic and broad scholars. When making a choice of the exchange rate regime, the correlation between the exchange rate regime and the economic growth is always the first factor taken into the consideration. Based on such a background, study on the correlation between the exchange rate regime and China's economic growth nevertheless possesses the theoretical and realistic significance.Theoretical and empirical analyses are used in this essay to study the correlationbetween exchange rate regime choice and economic growth. In theoretical study,based on the economic growth and exchange rate regime choice theories, this paperestablishes a conduction mechanism between exchange rate regime choice andeconomic grow by means of the property rights. By means of the property righttheory, the mechanism analyzes how exchange rate level, exchange rate volatility,the number of exchange rates and foreign exchange market impact the participants'behaviors and how these behaviors impact the economic growth factors whichstimulate or block economic growth. In empirical study, with reference the IMFclassification, this paper firstly classifies China's historical exchange rate regimesinto four categories, namely pegged USD regime, pegged basket regime, dual regimeand managed float regime and utilizes dummy variable to represent regime variables.Then this paper utilizes the Weighed Least Square method to make quantity study,measuring the exact quantitative correlation. According to the empirical result,pegged USD and managed float regime have negative impact on economic growthwhile pegged a basket currency regime has a positive impact. The dual regime is notstatistically significant. Finally, according to the qualitative and quantitative analysis,this paper puts forward political suggestions on China's further exchange rate regimereform.