Study On Asymmetry Of China's Foreign Exchange Market Intervention And Foreign Exchange Reserves Accumulation

Foreign exchange market intervention is so continual and opaque among emerging economies that it is becoming a burning issue.As china has pursued export-oriented strategy consistently,it was widely believed that the Chinese monetary authority has conducted foreign exchange market intervention against RMB appreciation to promote exports.At the same time,?Report to Congress on International Economic and Exchange Rate Policies?publicized by the US Treasury Department twice a year has repeatedly identified China as "currency manipulator"?claimed that the renminbi is undervalued and or be included on the monitoring list.All these have shown that the PBOC(People's Bank Of China)has never given up foreign exchange market intervention.Since the reform of RMB exchange rate mechanism formation in July 2005,the exchange rate of RMB against the US dollar has experienced the appreciation?re-pegging of the US dollar?appreciation again and depreciation.At different stages,foreign exchange market intervention conducted by the PBOC may be asymmetric.As the reform of RMB exchange rate marketization is deepening,the variation of asymmetry and the exchange rate management philosophy of the PBOC deserve more attentions.In addition,the foreign exchange reserves are material basis for central bank intervention,foreign exchange market intervention conducted by the PBOC would make foreign exchange reserves increase or decrease.Therefore,this paper aims to study the asymmetry of foreign exchange market intervention and the relationship with the accumulation of foreign exchange reserves in China,and then explore the central bank's intervention preferences.intervention rules and intervention objectives,and accordingly make reasonable suggestions on exchange rate policies.Firstly,this paper combs the literatures of asymmetric foreign exchange market intervention in both emerging economies and China since the 1990s.And we find out that during the currency appreciation period,the emerging market economies included China,have conducted foreign exchange market intervention.However,there are lack of related literatures under the currency appreciation period.Recently,with the decline of China's foreign exchange reserves,many scholars believe that China should maintain a reasonable level of foreign exchange reserves and avoid excessive intervention in the foreign exchange market at the same time.Secondly,based on the asymmetric loss function of the PBOC,this paper estimates the loss function of the PBOC since August 2005 by Generalized Method of Moments,State Space Model and Kalman Filter.And then this paper analyze the asymmetric Preference and relative weight of exchange rate in the PBOC's loss function.The empirical analysis show that the PBOC has conducted asymmetric foreign exchange market intervention,but the intensity of the intervention is weakening with the marketization of RMB exchange rate increases.The tendency of USD and monetary policies of the US authorities have spillover effects on the PBOC's foreign exchange market intervention,and foreign exchange market intervention conducted by the PBOC serves as a defensive exchange rate management philosophy in the dollar-dominated international monetary system.With the sharp decline of foreign exchange reserves,it is the time to maintain reasonable scale of foreign exchange reserves.