| Since the reform and opening up, China has set economic development as the focus of the government, and great efforts have been put to strengthen international economic interaction and the development of foreign trade. After nearly three decades, China’s foreign trade has realized a rapid growth. Especially after the successful accession to the World Trade Organization, the total import and export volume has seen a significant increase, the geographical distribution of the counterparty and settlement currency type are also greatly enriched. In this background, People’s Bank of China announced its implementation of the managed floating exchange rate regime with reference to a basket of currencies on July21,2005, as an adaption for the economic environment and a response to the call for a more flexible exchange rate regime.However the expression of the new exchange rate regime was vague and it does not announce the details including the types of currencies in the basket and their weights. And this fact stimulates many scholars’ studies to reveal the de facto exchange rate regime of China.Based on the model for estimating the exchange market pressure (EMP) from Bo, Yongxiang(2008) and the model for estimating the basket weights and the flexibility of the exchange rate regime from Frankel and Wei(2008), the author tries to find a better way to estimate the basket weights and the flexibility of the exchange rate regime by combining the two sector of studies in this paper. And the structure of the paper is as below:In Part one,the author explained the research background and the reason for choosing this theme, he demonstrated the structure, and summarized the innovation in the paper.In part two, the author introduced the history of the RMB exchange rate regime so as to give the readers the general idea about the evolution of it. He also, in this part, discussed about the current regime and gave a brief comment on the topic.In part three, the author reviewed the literature of researches both on EMP and on the estimation of the weights and flexibility of currency basket regime.In part four, the EMP of china is estimated using the definition given by Weymark (1995) and the calculation model of Bo, Yong-Xiang (2008). As our final goal of the paper is to examine a new method of estimate the basket weights and the flexibility of the exchange rate regime with the data since the July2005regime change, here we calculated the EMP with data from the same period. And the author also went little bit further to compare the estimating result of EMP by different currencies (USD/RMB and SDR/RMB) and by different methods (the one from Frankel and Wei (2008) and the one from this paper), and find some conclusions.Part five is the focus of this paper where the new method is examined. The author divided data into three periods by using the Chow breaking point test, and then estimated the basket weights and flexibility of currency basket regime. Comparing with the previous model, the model in this paper got the similar result, which implied its reliability, while it also provided higher R square and lower sum of squared residual, which implied its better fitness.Thus in the final part, the author summarized the empirical result and made the conclusion. He also pointed out the limits in this paper and the potential further development on the topic. |
