| Since the independence and transparency of the central banks in the world are increasing, as a new monetary policy tool, exchange rate communication is gradually becoming an important tool to intervene the foreign exchange market. As China announced to implement the reform of RMB exchange rate formation mechanism and system in July 2005, exchange rate formation mechanism is maturing and the exchange rate reflects the market supply and demand. Recent years, China’s monetary authority regularly publishes the exchange rate communication in the report as well as the leaders of the monetary authority also express ideas of the exchange rate in the public. The RMB marketisation is deepening. Whether can China’s exchange rate communication influence the level of RMB exchange rate? And through which channel does the exchange rate communication work? The research on the questions could contribute to the use of the new monetary policy as well as the further promotion of the RMB exchange rate reform. What’s more, it can also improve the degree of the RMB marketisation.The paper combines the theoretical analysis with empirical test. Firstly, we summarize the papers specialized in the effectiveness and the mechanism of the central bank exchange rate communication. Secondly, we research on the possible two function channels-the signaling channel and the coordination channel in the theoretical analysis part. Thirdly, we use EGARCH model to test the effectiveness of the exchange rate in the short and the long term. Further, we add the actual intervention to the long term model, thus we can contrast the effectiveness of exchange rate and actual intervention. Forth, on the basis of the above study, we test the function channel of the exchange rate. Lastly, we draw the main conclusions. We find that the central bank exchange rate is effective both in the short and in the long term. Furthermore the exchange rate communication functions through the coordination channel. |
PDF Full Text Request