Research Of RMB Exchange Rate Volatility That Based On Markov Regime Switching GARCH Model

The exchange rate has always been the research focus of domesticand foreign economists, because it is not only impact domestic economy,but also influent the development of international economy, Therefore,understanding the dynamic of the exchange rate and forecasting thechange of the exchange rate has great significance for the country’seconomic research. With rapid economic development of china and itsconstant contact with external, RMB has gained more and more attentionin the international trade and investment activities, especially in recentyears, with the deepening reform of Chinese exchange rate regime, webegan to implement a managed floating exchange rate regime that basedon market supply and demand, in particular the outside has been giventhe pressure of RMB to appreciating, For these reasons the fluctuations ofRMB exchange rate by more and more attention at home and abroadTherefore, This paper take the RMB exchange rate as research object tostudy the volatility law by using Markov-Switching GARCH model.In this paper, we reviewed some exchange rate theories and takebasicly statistical descriptive analysis of the exchange rate, we firstly useARCH model to take Empirical Analysis of the nominal exchange rateof the U.S. dollar against the RMB weeks yield data from September2ed,1994to March1st,2013. then we using Markov-Switching GARCHmodel to take empirical analysis of our sample data, Taking each model to describe the dynamic behavior’s characteristics of the RMB exchangerate, Analysis and comparison of the various model fitting effect on theadvantages and disadvantages, the final empirical analysis results tell usthat Markov-Switching GARCH model can better fit of the RMBexchange rate volatility, and more practical, Comparison of the averageof ARCH model, Markov-Switching GARCH model is more suitable forthe study of RMB exchange rate volatility.