The Research Of China’s Credit Currency Mismatch And The Relationship With Exchange Rate Regime

The continued growth of foreign exchange reserves and the stressful appreciation ofRMB are still economists’interest field, they are interested in how to use so much foreignexchange reserves and where the limitation of appreciation of RMB is. But the currencymismatch problem caused by the net foreign asset and the sensitivity of exchange rate arealso very important to decide exchange rate regime.As a result,this paper are going toanalyze theory of currency mismatch and relationship between China’s credit currencymismatch and exchange rate regime.Several indicators can measure currency mismatch,the AECM index proposed byMorris Goldstein and Philip Turner(2005) can reflect the degree of currency mismatchwell.Currency mismatch is a common phenomenon in developing countries,because theircurrencies are not important in international market and domestic bond market isunderdeveloped.By analyzing theory of currency mismatch,we can have a further study toresearch the relationship between currency mismatch and exchange rate regime.Based on the credit currency mismatch of China,this paper use new AECM index toestimate and test our country’s currency mismatch. However, the result reveals thattransition of exchange rate regimes influenced by currency mismatch in China.To verifymore clearly relationship between currency mismatch and exchange rate regime,this paperuse Hausman test and simultaneous analysis.The result shows that the two influenced eachother.The change of exchange rate causes the change of foreign income andexpenditure,then these cause currency mismatch.On the other hand,currency mismatchinfluences the fluctuation of exchange rate,all these means that monetary authoritiesshould consider currency mismatch when they constitute monetary policies.