Research On China's Currency Crisis Early Warning Based On KLRm Index

Since the 1980s,there have been frequent financial crises around the world.Especially in the 1990 s,there have been frequent financial crises dominated by currency crises.These crises not only seriously affected the development of domestic economy,but also caused turbulence in the international financial system.On July 21,2005,China carried out the exchange rate reform and established a single,managed floating exchange rate system.In the second half of 2015,due to external shocks,China's foreign exchange market saw the central parity rate of RMB depreciate by nearly 2% against the US dollar,foreign exchange reserves rapidly declined,and the risks of exchange rate fluctuations and international capital flows gradually increased.Today,high volatility has become the main theme of the global financial market.Although the Chinese economy is relatively stable on the whole,the economy is facing downward pressure due to domestic and foreign troubles.The RMB exchange rate also shows a wide range of fluctuations under the influence of the market.The hidden danger of currency crisis should be worried,because once it happens,it will not only harm the interests of enterprises,make the operators lose confidence,but also lead to the withdrawal of foreign investors,ultimately the entire economy,the financial system will be damaged.Therefore,it is of great importance and far-reaching significance to construct a currency crisis early warning system in line with China's national conditions.Firstly,this paper introduces the interest rate variable on the basis of the traditional currency crisis pressure index,namely,the KLRm index is used to describe the occurrence of currency crisis,and then the appropriate threshold is determined to define the currency crisis to a certain extent in the light of the current situation without currency crisis in China.In constructing a currency crisis early warning index system,this article from the macroscopic economy,the banking system,and the external shocks,screened 11 alternative leading indicators,then all optional indicatorsand KLRm index this article build respectively through Granger causality test,determine the three representative early warning indicators: the growth of foreign exchange reserves,the growth rate of M2 /domestic credit and the growth rate of nominal GDP.Then,in this paper,on the basis of the above three macroeconomic variables is introduced lag explained variable and lag index constructed four different forms of Logit model,compare and contrast the estimated results of different models and fitting effect,we found that the simple dynamic Logit model is superior to the other three models,namely the currency crisis is occurring with inner continuity characteristics that cannot be ignored.At the same time,we found that the risk of currency crisis showed a trend of fluctuations,but also in our country currency crisis risk had a status of the emergence of a high level after 2018,and has a tendency to continue to rise,so in the second half of 2019 to the first half of 2020 the presence of a currency crisis risk prediction is necessary.Finally,this paper uses a simple dynamic Logit model of currency crisis early warning and forecast probability is between 0.3 and 0.5,and uses the BP neural network model to predict the result as robustness test,two models are shown in our country the currency risk in July 2019 to June 2020 on a relatively stable level,suggests the possibility of a currency crisis erupted in the economic system of small,proved that our country since the implementation of policies to strengthen the stability of the economic system,and the country's capacity to cope with external shocks.However,China's foreign exchange reserve level,M2/ domestic credit growth rate,nominal GDP growth rate and other indicators are still at a certain risk level.In the future,China will still focus on monitoring the economic dynamics of relevant indicators and continue to implement a prudent monetary policy.