Exchange Rate Regime And Anti-Inflation Performances

Exchange rate regime is an important research topic in international finance, as a critical system arrangement, the choice of exchange rate regime is endogenous. The optimal exchange rate regime is born within economic, financial, political and a series of basic factors. The choice of exchange rate regime can effect anti inflation performances, in turn, inflation performances as an important indicator of macroeconomic performances also plays a decisive role in exchange rate regime. This paper expounds the relationship between exchange rate regime and inflation in theory,and analyzes the connection from the system of internal perspective, based on the theory of endogenous choice of exchange rate regime, through the empirical study of economic data of 26 developed countries during the period of 1993-2010,demonstrates the endogeneity of exchange rate regime. Modeling static and dynamic panel model, the exchange rate regime as endogenous variables into the panel model,through empirical research proves the relation between the endogeneity of exchange rate regime and anti inflation performances, combined with China’s inflation history and exchange rate regime transition, provides suggestions for the future choice of China’s exchange rate regime.The main work of this paper is to analyze the impact of exchange rate regime choice and inflation. This paper through experience analysis and empirical analysis method from all aspects of research in order to study the problem. From the full paper of the framework, this paper includes three main parts, divided into five chapters.Chapter 1 and Chapter 3 is the theoretical basis of this paper, Chapter 1 research the domestic and foreign literature, from the perspective of three different exchange rate regimes and anti inflation performances of the empirical literature. Chapter 3 analyzes the theory of the choice of exchange rate regime and inflation performances, combing with the relevant theory, from the perspective of endogenous proves the relationship between the exchange rate regime and anti inflation performances. The second part is the part of empirical study of this paper. Chapter 2 clarifies the definition of developed economies, combined with the developed countries macro economiccharacteristics and regulatory policies and analyzes the relationship between the choice of exchange rate regime and the anti inflation performances of United States and the European Union. Chapter 4, according to the relevant economic variables of domestic and foreign literatures, this paper collects data of the developed countries,through empirical analysis combined with multiple regression model and two element probit model test the endogeneity of the exchange rate regime, modeling the dynamic and static panel data model. The realization process of the developed countries the choice of exchange rate regime and anti inflation performances through regression analysis, come to a conclusion : for developed countries, with the choice of exchange rate regime endogenic, an optimal exchange rate regime was born in the economic,political, financial and other basic factors. Floating exchange rate regime can reflect the basic needs of the economic factors and realize efficient allocation of resources.The floating exchange rate regime has a better anti inflation performances than the fixed exchange rate regime. The third part, firstly, the paper introduces the history of the development of China’s exchange rate regime change process and the inflation,combined with the implementation process and anti inflation performances in developed countries, then the paper provides the medium and long term suggestions for China’s choice of exchange rate regime.The innovation of this paper is mainly reflected in the empirical research and the selection of related samples. In the empirical research,due to the exchange rate regime is endogenous, making the exchange rate regime as dummy variables of empirical research, emphasize the importance of the exchange rate regime for anti inflation performances, This is rare in the current study. In the sample selection, this paper from seven aspects, such as economy, education, health, combined with authority classification, From a more comprehensive views identified 26 developed countries as the research object. In the empirical research,there are also some shortcomings. Due to difficulties in collecting this paper’s data, the data span is only 1993-2010, if the data can be updated to the latest year, it will provides a more convincing results on relevant issues.