Analyzing The Effect Of Macroeconomic Factors On Mongolian Currency Exchange Rate

With the accelerating pace of economic globalization,the Mongolian economy has gradually integrated into the world economy.Trade between Mongolia and the rest of the world has become increasingly frequent,with the most frequent trade occurring with China and Russia.The Mongolian currency exchange rate acts as the bridge between trade and financial activities with foreign countries.Since Mongolia is now playing an extremely important role around the word,Mongolian exchange rate policy is becoming increasingly important and making research on exchange rate policy meaningful.Restricted by geographical conditions,Mongolia is landlocked between China and Russia without coastline and so the main trade traffic channel is through Russia and since the establishment of diplomatic ties with China in 1949,through China.Mongolia has established a good relations and the cooperation with China on trade.There are data showing that the investment from China in Mongolian is among the highest of the world.In addition,data show that the economy and trade between the two countries has been complementarity,benefiting both China and Mongolia.So,for this reason too,therefore,it is important research to understand exchange rate policy between China and Mongolia.Research on exchange rate policy must begin with understanding which factors affect exchange rate between Mongolia and China.Only when we fully understand the function and impact of these factors,can we provide the concrete and useful measures to implement exchange rate reform in Mongolia.This thesis investigates exchange rate between China and Mongolia between 1996 and 2015,using SPSS statistical analysis software to carry out factor analysis.The 12 parameters selected for the investigation were annual growth rate of GDP per capita of Mongolia,Mongolian balance of trade/GDP,Mongolian total reserve/GDP,Mongolian total import and export/GDP,FDI/GDP,Mongolian total domestic savings/GDP,money supply /GDP,Mongolian CPI,Mongolian gross fixed capital investment/GDP,China's per capita GDP annual growth rate,China's CPI,and the interest rate difference between Mongolia and China.The factor analysis,four factor categories were speculatively identified;the long-term price factors,policy factors,economic growth factors and trade factors.A Linear regression method was used to analyze these 4 factors and with the Mongolian exchange rate as the dependent variable,the linear regression model was established.The results of the empirical analysis with the four categories(F1,F2,F3,F4)correlation coefficient with exchange rate respectively were 0.834,0.441,-0.120 and-0.073.Without considering the interaction of four factors,the correlation coefficient were positive between the long-term price factor F1,policy factor F2 and the exchange rate,while the correlation coefficient were negative between economic growth factor F3 and the trade factor F4.In addition,comparison to economic growth factor F3 and trade factor F4,the long-term price factor F1 and policy factor F2 have more important influence on the exchange rate,as there is no correlation.If interaction factors between the four factors are considered,the linear regression results show that the correlation coefficient are positive between the long-term price factor F1,policy factor F2 and the exchange rate,the correlation coefficient is negative or not significant between economic growth factor F3 and the exchange rate.However,the difference in the trade factor F4 may be affected by the other factors.Long-term price factor F1 and policy factor F2 have a significant impact on the exchange rate based on the correlation coefficient.In contrast to the to the economic growth factor F3 and trade factor F4.In conclusion,it can be seen that the results between two conditions are basically consistent.Namely,the long-term price factor F1 and policy factor F2 are the two main factors influencing the exchange rate.The research on these variables on behalf of the long-term price factor F1 and policy factor F2 is significant,with individual factors of the CPI,Mongolia fixed capital investment,Mongolia total reserves,money supply and interest rate difference of two countries being the most important.Finally,this work proposes some suggestions.First,Mongolia should promote the reform of the interest rate system,building a good relationship between exchange rates and interest rates using financial tools to protect the Mongolian economy from exchange rate risk.Second,to making the foreign reserve more suitable to the new situation after exchange rate reform with the reasonable use of financial derivatives against exchange rate risk.Third,deal with the relationship between the increase in development and the change of exchange rate,the government should push forward foreign exchange reserves of rationalization,strengthening the construction of the supporting system and push the innovation among capital market,monetary market,system and product market.Thus promoting foreign exchange markets,money markets,capital markets,the gold markets and other coordinated development of the markets.Then it may deepen the reform of Mongolia's financial markets.Finally,the reasonable process of the mutual relationship between economic growth and exchange rate changes must be considered.In addition,Mongolia,must pay more attention to the bilateral economic cooperation with China while maintaining healthy development of Mongolian exchanges and cooperation in various fields.