Research On A Country’s Exchange Rate Regime From The Economic Shock Aspect

Exchange rate is the bond between nations’international trade. Exchange rate regime plays an important role in a country’s economic development, there exist several factors which may affect a country’s exchange rate regime choice, among them, different types of economic impact play a big part. If a country can make a reasonable choice of exchange rate regime, it can effectively cushion the influences which caused by the economic shock in a country’s foreign trade and in the financial sector, awarding the country self-recovery capabilities to deal with the adverse consequences caused by the economic shock. If a country fails to select an appropriate exchange rate regime for the nation, the economic shocks may cause heavy losses to the country’s macroeconomic development, and will be difficult to recover in a given period. This paper research on a country’s exchange rate regime from the perspective of the economic shocks has a theoretical and practical significance for macroeconomic stability and development of China.Based on Mundell-Fleming comparative static model, this paper do derivation and analysis for the influence which caused by different types of economic shocks under different exchange rate regimes, and do empirical analysis of macroeconomic variables’historical data of China and Singapore, then hands out proposals for the developing direction of China’s exchange rate regime choice. This paper contains four parts:The first part introduced the current studies on the economic shocks and the exchange rate regime choice; the second part introduced the relatively theory of the economic shocks and exchange rate regime choice, and described the Mundell-Fleming comparative static equilibrium framework, hold the opinion that in an open economy, if the economic shock a country faces mainly come from the practical aspect, it should choose the floating exchange rate system; if the economic shock a country faces mainly come from monetary aspect, it should choose a fixed exchange rate regime; the third part build SVAR model, do empirical testing on historical data for China and Singapore respectively, verify whether the two countries’exchange rate regime choice meets the theory, and analyzed the counting results; the last part makes a statement analysis on the evolution of the exchange rate system to China and Singapore, analyzed the revelation that Singapore exchange rate regime’s success showed China, and hands out recommendations on China’s exchange rate regime based on China’s current economic situation. This paper meet the conclusion that economic shocks faced by China and Singapore are both from the real aspect, so floating exchange rate regime is preferable for China to face the economic shocks and develop its state economics.