Study On The Volatility Spillovers Effects Of RMB Exchange Rate Based On BEKK-MGARCH Model

On July 21,2005, China began to implement the floating exchange rate system, under management, based on market supply and demand, referring to a basket of currencies.The reformation of RMB exchange rate in 2005 was also considered a star sign market-oriented reform of RMB exchange rate since then, and the flexibility of RMB exchange rate is escalating, and the RMB exchange rate floating bands remain widening gradually. With the marketization of the RMB exchange rate,RMB internationalization has picked up rapidly, especially in recent years, the monetary and financial cooperation between China and developed market countries, as well as the cooperation between China and emerging market countries is more and more closely. The goal of marketization and internationalization is to allow the RMB to become one of the major global payment and reserve currency, so as to promote the development of our country’s economy.During the process of marketization and internationalization, the impact of the external market information on RMB foreign exchange market is increasingly obvious.This phenomenon that information can be passed between different foreign exchange markets was called volatility spillover effect by scholars. As is known to all, the foreign exchange market is one of the main financial markets, the exchange rate is an indicator of the foreign exchange market,other countries currency abnormal fluctuations can transfer information through the foreign exchange market to the domestic financial market,which could affect the stability of internal financial system.So, to study the exchange rate volatility spillover effect between RMB and other currencies has great theoretical value and immediate significance.This paper was committed to discusses the volatility spillover effect between RMB and developed market currencies,as well as the effect between RMB and emerging market currencies.We had considered the exchanges and cooperation in the reality since the exchange rate system reform in 2005,and selected the EUR and the USD as the representative of the developed markets currencies,and selected Russian rouble and Brazilian real as the representative of emerging market currencies.We tested volatility spillover effect between RMB and other currencies based on BEKK-MGARCH(1,1).This paper arrives at the following conclusions:Firstly, the exchange rate yield in both developed market and emerging market do not follow Gaussian distributions, but the fat-tailed features and gathered phenomenon of fluctuations are very obvious. Secondly, compared with emerging market currencies, the fluctuations of amplitude of developed markets currency is more gentle, and last longer.Thirdly, the combination of fluctuations between EUR and USD have obvious volatility spillover effects with RMB, and in the relationship with the two emerging market exchange rate, only exists single volatility spillover effect with RUB, and it is not significant to BRL. At last, according to the results of the research, the paper gave some reasonable suggestions on how to prevent risks of the RMB exchange rate volatility.