Empirical Analysis Of RMB Exchange Rate Impacton Asset Prices

RMB exchange rate and asset prices are the core issues of macroeconomics, many scholars discussed around these two words in-depth details. In earlier studies, using vector autoregression method to describe the impact of exchange rates on prices of assets are common and universal. However, with deeply understanding of economic theory and innovation of research methods, simple vector autoregression has been unable to depict the relationship between exchange rates and asset prices. Therefore, we introduce non-linear model to examine the impact of RMB exchange rates on asset prices. Therefore, based on previous studies, we will use time-varying estimate, depicting the relationship between RMB exchange rates and asset prices from dynamic angle and we will give the characteristics of the changes between the variables.Inherit past experiences, we consider short-term capital flows and real estate prices in the scope of our study for further understanding. First, we chose RMB real effective exchange rates and the Shanghai A-share index as the substitution variables for exchange rates and stock prices. Then, we use indirect method to compute monthly data of short-term capital flows and standardize the results. Dividing housing sales area by total housing sales, we obtain real estate prices.In the stationary test and cointegration test of all sequences, we found that the sequences of short-term capital flows were stable. That was most probably because of the calculation process. And we also found that although the other three sequences were unstable, all four sequences got long-term stable relations. This will not influence the TVP-VAR model we built. Based on the result of the tests, we add the research feature and random volatility to a time-varying VAR model(TVP-VAR), and we draw equal interval impulse and time point impulse to give the interaction of different variables.We found that the direction of the RMB appreciation influences on the stock prices were not determined and it can go into both ways. Mostly because short-term capital flows act an important role in the process, which makes RMB exchange rates indirect affect stock prices. So there will be a spillover effect on the stock market.On the comparison, RMB exchange rates affect real estate prices more directly. RMB appreciation will raise real estate prices in short terms. However, it will be more complicate in the long-term circumstances. The direction of the impact will change with time change and the strength of the impact will be stronger.From the point of view of capital flows, we found that short-term capital flows will obviously affect RMB exchange rates and real estate rates. Slightly different from previous study, the strength of the influences from capital flows to the RMB exchange rates is increasing but not declining. Furthermore, the impact of short-term capital flow shows differences, which affect more of the stock prices than real estate prices.