The Empirical Research Of RMB Exchange Rate Volatility Based On GARCH Model

It has been more than three years since the ‘8·11 Exchange Rate Reform' implemented in 2015.During the time,the reform of the formation mechanism of the daily reference rate for RMB has been continuously improved and recognized by the market.The RMB was included in the SDR(special drawing rights)formally on October 1st,2016,which made the RMB become the third major currency after the dollar and the euro.Accordingly,the international status of the RMB has been significantly improved and internationalization of the RMB has been accelerated.In March 2018,the China-US trade war began and escalated,spreading from international trade to many other fields,which also affected other countries.Faced with so many different shocks,the exchange rate of RMB against the dollar has experienced a process from depreciation to appreciation and then to depreciation,the fluctuations of which are frequent and strong.Excessive volatility of exchange rate will bring more uncertainties and additional risks to economic and financial activities in the exchange market of our country.Therefore,it is particularly important to understand the rule of the fluctuation correctly and then prevent and control the foreign exchange risk effectively.This paper chooses the daily reference rate for the RMB against the dollar of each trading day from August 11,2015 to March 26,2019 as the empirical data.In order to obtain a stable sequence of exchange rate,the empirical data are processed by differentiation after the logarithm.Descriptive statistical analysis of the sequence is followed,which shows that compared with the normal distribution,this sequence has the obvious characteristics of "peak and fat tail".After the stability test,autocorrelation test and heteroscedasticity test,it is confirmed that there exists volatility clustering phenomenon in the series.Therefore,it is reasonable and feasible to use GARCH model to fit the sequence of the RMB against the dollar exchange rate.Meanwhile,TGARCH model and EGARCH model are used to fit the leverage effect in the return series.Compared with the other models,EGARCH(1,2)is concluded as the best fitting model.In the end,according to the characteristics of RMB exchange rate fluctuations,the established model and forecast results,combined with the economic situation of our country,the paper puts forward several relevant policy recommendations.