Multi-scale Analysis Of RMB Exchange Rate Based On Wavelet Theory

With the accelerated pace of globalization, the relationships of economic and financialbetween countries around the world will become inseparable and the exchange rate, which is atie of international dealings, will be given sufficient attention to maintain their stabledevelopment in the international economic and financial environment. That is same to ournation, especially in the case of economic prosperity and its rapid growth now, the stability ofRMB exchange rate directly affects the sustainability of our national economic development,at the same time, the RMB exchange rate is the outpost of the process of RMBinternationalization. The research, which is about the characteristics of RMB and theconnection between RMB and other economic variables, makes us understand the basic lawabout RMB exchange rate fully, and provides the theoretical support to control certainexternal risk and the relevant policy suggestions with regard to the reform of RMB exchangerate and the strategy of RMB internationalization.Scholars began to study exchange rate theories in the fourteenth century. The exchangerate theories have got comprehensive and rapid development among the past seven centuries,however, the building of every theory bases on the certain international economic andfinancial environment. So when doing some research on exchange rate itself and a certainexchange rate, we cannot be restrained with a certain theory or some theories and shouldconsider the relevant environment of it, at the same time, we also should absorb the points ofviews of each school to study the exchange rate itself and the relationships between exchangerate and other economic variables objectively. This paper integrates the theories of purchasingpower parity, monetary analysis, target zones of exchange rate and so on to discuss RMBexchange rate. Firstly, do some research on RMB exchange rate itself, including the detectionto the points of its mutation and the persistence of RMB exchange rate on the scale level. It isexploratory to be confirmed that the testing theory of the wavelet singular signal is feasibleand effective to test the structural breaks of time series. Meanwhile we find that thepersistence of the revenue series of RMB exchange rate has obvious differences according todifferent exchange rate systems and even the major economic or financial or political eventsare able to change the structure of RMB exchange rate under the same exchange rate system.Secondly, analyze the relationships between RMB exchange rate and the price levels fromtwo sides, which are the side of RMB and the side of U.S. dollar relative to RMB. This paperstudies the coordination mechanism among them at different scales and compares therelationship of one side with that of another side, it is found that the relationships betweenRMB exchange rate and domestic price level or American domestic price level are the fractional nonlinear co-integration at multiple scales, that is to say, they have the internalnonlinear coordination mechanism in the complex economic and financial system.Simultaneously, the mutual relationship between the internal value and the external value ofRMB is unidirectional and asymmetric. However, relative to the RMB, the mutualrelationships of the internal value and the external value of U.S. dollar is bilateral andsymmetrical. All of these make our national wealth faced with pressure from double changesof the relevant value.Based on the above obtained conclusion, this paper puts forward to the relevantproposals and measures consisting of the specific regulation to RMB exchange rate, thereform of RMB internationalization and the adjustment of exchange rate reserves. It isconsidered that the regulation to RMB exchange rate should change from the regulatorysystem of a single sequence to the regulatory system of multi-scale sequences, which canmake our government policy makers have a more accurate grasp on the RMB’s ownmovement and plays an important role for economic stable development. In addition, theinternationalization of the RMB reform should be promoted further to weaken the impact ofthe changes of international currency value to the national wealth of our country and improvethe structure and the management methods of foreign exchange reserve to protect the nationalwealth on the other hand. The research of this paper can provide the relevant empiricaltheoretical basis for drawing up the policy of RBM exchange rate, exerting the economicleverage of exchange rate and stabilizing the external environment of national economy.What’s more, it also provides he corresponding reference for the overseas investment ofdomestic enterprises and the domestic investment of foreign firms.