A Study On Influencing Factors Of Currency Mismatch On Emerging Economies

Currency mismatch is a common phenomenon under the financial globalization,It’s the problem that the emerging economies and developing countries must face when they are tend to be integrated into the international financial system. Currency mismatch poses a threat to the stability of the financial system in emerging economies, and may even lead to the outbreak of the financial crisis. Currency mismatch also affects the country’s exchange rate regime choice and the effectiveness of monetary policy. It’s clear that Currency mismatch poses a threat to the economic operation of the emerging economies. Therefore, it needs to analyze the influence factors of currency mismatch so as to provide a theoretical basis for taking effective means to manage or control currency mismatch in the emerging economies. Combined with the actual situation of our country at the same time, this paper puts forward the solutions to solve the currency mismatch.The research idea of this paper is organized as follows. Firstly, it analyses the currency mismatch condition of emerging economies, and the effect on emerging economies. Then the paper makes a theoretical analysis and a empirical analysis to analyze the influence factors of emerging economies, derives influence factors from the theory, carries on the empirical analysis of these factors, and further explores the significance and the correlation of the influence factors. And then it puts forward the means to solve the problem of currency mismatch of emerging economies with the combination of theoretical analysis and empirical analysis. Finally, it studies the currency mismatch in China and puts forward the solutions to the currency mismatch combined with the situation in our country. According to the research idea, this paper mainly includes three parts. In the first part is on the investigation to the currency mismatch condition of emerging market economies. Through the analysis, it shows that the upward trend of emerging economies. The second part is the theoretical analysis and empirical analysis on the influence factors of currency mismatch. This paper analyses the fundamental factors and institutional factors. The fundamental factors include economy internal capital supply and demand, economic development level, inflation and interest rates. While the institutional factors include securities market development level, financial openness and exchange rate system. After the variable selection of the influencing factors in theoretical analysis, it regresses by using dynamic panel model.The regression results show that in the fundamental factors, emerging economies internal demands for capital, economic growth rate and real interest rates has significant effects of currency mismatch. The effects of Emerging economies to the supply of capital, the per capita national income and savings rate of currency mismatch was not significant. The influence of the internal demands for capital, real interest rates and currency mismatch is a negative correlation, while the economic growth and currency mismatch is a positive correlation; As to institutional factors, financial market openness and level of securities market development has significant effects on currency mismatch,and negatively related to the currency mismatch, however, the exchange rate regime has not significant effects on currency mismatch. The last part puts forward solutions for the currency mismatch in China. The study shows that the degree of currency mismatch in China in general is on the rise. This paper puts forward the idea to solve the problem of currency mismatch in China, it not only aims to maintain the balanced development of economy, focus on expanding domestic demand, lower economic growth forecasts,higher real interest rates, but also aims to steadily promote the reform of financial system, to promote financial markets open, at the same time, to develop the securities market. This article has three innovative points, it proposes the new currency mismatch measure, and on the basis of predecessors’ researches, analyzes the advantages and disadvantages of all kinds of measure index, and then sets up a new currency mismatch index, CAECM. Second, in the empirical analysis, it doesn’t use the nominal exchange rate system classification but using Reinhart and Rogoff(2008) classification of facts.The last but not the least, this article uses the dynamic panel model, analyzing the influence factors of currency mismatch to join the lag issue. It also needs a further improvement, first of all, based on the data availability, the empirical data update only to 2009. If the empirical data further updates to the year after 2009, the researches in the impacting factors of currency mismatch will be more meaningful for the present situation; Secondly, CAECM index just simply multiplies the factors which may have deviation; Finally, this paper studies on only nine factors among the influence factors of currency mismatch. If it adds new explanatory variables, the model will be optimized,and the strength and scope of explanation will be more practical.