Counter-cyclical Factor And Exchange Rate Fluctuation

In China,due to the imperfect market,market transparency and policy credibility are facing challenges.Investors are vulnerable to market sentiment.In the reform of the RMB exchange rate formation mechanism,the trend of the exchange rate and the fundamentals of the economy are prone to divergence due to some factors,such as the influence of investors' irrational emotions.In the context of such a trend of exchange rate and the fundamentals of the economy,in May 2017,the central bank introduced a countercyclical factor in the pricing mechanism of the central parity of the RMB exchange rate in order to alleviate the procyclical behavior of the market.In just a few months after the introduction of the countercyclical factor,the renminbi has appreciated by nearly 5% against the US dollar,and it has changed its depreciation trend for one year.According to the monetary policy implementation report,the central bank did not give a clear formula for the calculation of the countercyclical factor.The expression of the calculation process for eliminating the currency change and the adjustment of the inverse periodic coefficient is relatively vague,and the method of adjusting the inverse periodic coefficient by each quoting bank.The quoting bank still has a certain discretion.The direct method cannot be used to calculate the countercyclical factor.In this paper,we study the theoretical basis and source of the existence of countercyclic factors,and calculate the inverse periodic factor of inductive reasoning.264 transaction data of RMB against USD and a basket of currencies are selected from June 1,2017 to December 31,2017 and September 3,2018 to April 30,2019,which were used VAR model and TGARCH model to analyze the relationship between countercyclical factor and RMB exchange rate,trying to consider when to adopt the Cycle factor from the perspective of the central bank.Through the study of this series of problems,it not only theoretically enriches the literature research of the current countercyclical factors,but also it enlightens the RMB exchange reform and provides a reference for the realization of the RMB exchange rate market reform.The study found that the countercyclical factor will adjust with the growth rate of the RMB exchange rate.That is,when the RMB exchange rate growth rate rises,the countercyclical factor will adjust to the exchange rate trend.The counter-cyclic factor has a significant impact on the growth rate of the exchange rate between itself and the RMB,and the influence of the counter-cyclic factor on the growth rate of the RMB exchange rate and the impact of the RMB exchange rate growth rate on the counter-cyclic factor are negative.The countercyclical factor has a significant impact on the volatility of the RMB exchange rate growth rate.A positive countercyclical factor,the countercyclical factor that drives the devaluation of the renminbi,significantly inhibits exchange rate volatility.Therefore,it can be seen that since the implementation of the counter-cyclical factor of the central bank,the overall counter-cyclic factor is the direction of appreciation,which can better stabilize the volatility of the foreign exchange market and reduce the variance of exchange rate changes.The results of the robustness test are still robust and reliable.