Research On Monetary Security Early Warning Syste

Around the whole world, currency crisis has become more and more frequent, the influence isalso more and more serious, Throughout the successive crises,they are all characterized by thesharp depreciation of the currency in the crisis country. Fact, the currency depreciation is thedecline of the currency's external value, which is the manifestation of the instability of thecurrency's external value, also, the currency appreciation is another manifestation of the currency'sexternal value of instability. Some researches pointed out that currency crisis is the actual orpotential severe instability of the national currency's external value, and a state of the adverseeffects caused to the domestic economy. Like the mid-1980s' Japan, if the yen didn't appreciated tothe dollar in a short time, the economy of Japan may not be depressed for20years.China today is facing almost similar problem faced by Japan in the1980s. Since2002, theRMB has been facing great pressure to appreciate. Appreciation pressure directly increases thedifficulty and cost of the monetary authorities to develop and implement monetary policy, whichforms a huge foreign exchange reserves and potential foreign exchange reserve losses. In theprocess of choice the appreciation or not, and the speed of appreciation would constitute themultiple contradictions between stabling exchange rate or domestic price, and the internationalbalance of payments or sustained economic development. For China, such a large economy, theappreciation pressure, the reality of appreciation and so many contradictions should be givenadequate attention, it is particularly important to prevent and predict the risk of currencyappreciation.This article starts from a realistic angle of appreciation of RMB, using the theoretical model toanalyze the appreciation of the RMB may be potential threat to China's monetary security.Construct Chinese monetary security early warning system with symptom monitoring andcontrolling for the basic idea. Divided the index, which can reflect the security situation of currency,into the state index and influencing factor index. Analyze and forecast future possibility of unsafesymptoms of the state index by selecting certain econometric models and statistical methods. Andmake quantitative analysis of the impact mechanism between influencing factor index and thesecurity state indicator. According to the traditional theory of monetary crisis and appreciation ofcurrency crisis theory of monetary crisis and forming mechanism of description, selection of foreignexchange reserve and nominal exchange rate as monetary security state indicator, and by makingappropriate modifications with the exchange market pressure index which constructed by Goldstein et al (2000),Construct monetary safety index on the appreciation level,and select the difference ofdomestic and foreign interest rates, export growth, trade and the difference between the rate ofchange of money supply growth rate, the ratio of money supply (M2) and foreign exchange reserves,money supply and industrial output value of the ratio of the ratio of domestic credit and the totalindustrial output value, the domestic inflation rate of industrial added value year-on-year growthrate of nine indicators as the influencing factors. Finally, according to the symptom monitoring andcontrolling theory, the paper selected Markov-switching model for early warning of China'smonetary security to obtain the predicted probability of monetary security state. Finally, using OLSmethod to make quantitative analysis on the influence relationship between policy variables andmonetary security state prediction probability, which provide us the decision basis to choose properpolicy tools to make the risk control.