Comparison Of RMB Exchange Rate Volatility Spillover Effects Before And After Exchange Rate Reform

In the context of internationalization and marketization,the People's Bank of China issued a statement on August 11,2015,which decided to improve the quotation mechanism for the central parity of the RMB against the US dollar.After the exchange reform,the volatility of the RMB exchange rate has increased,the characteristics of two-way volatility have become increasingly obvious,and the links among the world's major currencies have become increasingly close.In this context,an in-depth analysis of the changes in the spillover effects of the RMB exchange rate before and after the "811 Exchange Rate Reform" will help to more accurately assess the effectiveness of the exchange rate reform and provide support for the further reform in RMB exchange rate formation mechanism.This paper first reviews the main course of the reform in RMB exchange rate formation mechanism and the specific process of the "811 Exchange Rate Reform" and analyzes its impact on the spillover effects of the RMB exchange rate.Then,based on the Ensemble Empirical Mode Decomposition,the currency exchange rate is decomposed and reconstructed,and the short-term fluctuation which is most suitable for characterizing the fluctuation of exchange rate is obtained.Finally,based on the short-term fluctuation of exchange rate,the volatility spillover characteristics of RMB exchange rate before and after the "811 Exchange Rate Reform" are investigated from the perspectives of static spillover,dynamic spillover and network topology,and the impact of exchange reform on the spillover effect of RMB exchange rate is explored.The empirical results show that volatility spillover effect of RMB exchange rate is strong and the effect is further improved after the "811 Exchange Rate Reform".From the perspective of static spillover effect,the volatility spillover effect of RMB exchange rate is relatively high,reflecting the fact that after several exchange reforms,the RMB has a certain degree of marketization.From the perspective of dynamic spillover effect,the volatility spillover effect of the whole system is enhanced,and the level of linkage among exchange rates increase after the "811 Exchange Rate Reform".The directional volatility spillovers transmitted by RMB exchange rate to others and the net volatility spillover from RMB to others increased,indicating that the "811 Exchange Rate Reform" increased the level of RMB marketization.While the directional volatility spillovers received by RMB exchange rate from others declined Rapidly on August 11,2015 and did not return to the level before the exchange reform until early 2016.This is because the central bank took a series of interventions to stabilize the exchange rate after the reform.From the perspective of network topology,on the day of the "811 Exchange Rate Reform" and the following trading day,the volatility spillover effect of the RMB exchange rate was significantly enhanced.Especially on August 12,the RMB exchange rate became the most important source of volatility spillovers in the entire exchange rate network,at the center of the network.It means that the exchange reform has had a great impact on the market.In summary,the "811 Exchange Rate Reform" has achieved certain results,but the reform of the RMB exchange rate formation mechanism still needs to be further improved.