Central Bank Intervention And Market Expectations

In recent years,The People's Bank of China has been carried out a large amount of foreign exchange intervention,Chinese foreign exchange market has been affected by the central bank intervention.However,when we explore the relationship between foreign exchange rate and the central bank intervention,it is important to search the expectation in the foreign exchange market.Therefore,this paper calculate the theoretical value of RMB central parity rate,by using the actual value of RMB central parity rate to subtract the theoretical value of RMB central parity rate,this paper construct a proxy variable for central bank intervention.Taking Deliverable Forward and Non-deliverable Forward as the exchange rate expectation of onshore market and offshore market.Using the price of foreign exchange option on both onshore market and offshore markets to calculate the implied volatility and implied skewness,and then take this volatility and skewness as the market's expectations of the real volatility and real skewness.By checking the exists of breakpoints,this paper first divide the whole sample into three samples;and then do stationary test and co-integration;based on this,this paper construct Vector Autoregressive(VAR)model,by estimating the VAR model?Granger causality test?Pulse response analysis and Variance decomposition,this paper study the interactional relationship between central bank's intervention and market's expectations,and the interactional relationship of the market's expectations between the onshore and offshore market under central bank's intervention.The conclusions of this paper are:the targets of central bank intervention are not only leaning against the wind,but also smoothing the expected volatility,but the mainly target is leaning against the wind,however,with the development of foreign exchange option market,smoothing the expected volatility is becoming more and more obvious.The leaning against the wind intervention is effective on onshoremarket,but is invalid on offshore market,while smoothing the expected volatility intervention can only play a weak role on both markets.Under the central bank intervention,with the development of both markets,the leading role of onshore market is strengthening,the mutual relation of the two markets is also greatly enhanced..