The Empirical Study On The Influence Of Currency Mismatch On The Effect Of Our Monetary Policy

When an entity(including country, bank, non-financial enterprise and family) uses the different currencies to value the expense and revenue, its asset will be different from that of its liability. This leads to the situation that the net income be sensitive to the change of exchange rate. In the end monetary structure will be mismatching, this phenomenon is called as currency mismatch. Under the background, currency mismatch has become increasingly prominent for developing countries, while this issue can not be solved in short term. With the deepen degree of currency mismatch, the effectiveness of monetary policy and the stability of financial system for developing countries have been affected. Thus currency mismatch has a bad influence on our country’s macroeconomic and financial security.After reviewing a large number of literatures at home and aboard, this paper analyzes both currency mismatch and monetary policy. First we explain the definition,measurement, forming reason and the effect for monetary policy of currency mismatch.Then the paper analyzes the causes and characteristics of currency mismatch for our country. At last, we modify the existing measure method of currency mismatch to compute currency mismatch index which is more in line with our country’s situation. In the empirical part, the paper analyzes effects of currency mismatch for monetary form two points of view, one is intermediary target and the other is the ultimate goal. The model we choose is Karras’ s vector auto regression(VAR).Empirical results show that the existence of currency mismatch affects both intermediary target and ultimate goal of monetary policy, but the impact is of different degree. Specifically, currency mismatch results in passive growth of money supply and weaker economic growth. It also enlarge the price effect of monetary policy, all these will eventually led to the rise of price level, then inflation intensifies.