Research On The Effect Of The RMB Central Parity Formation Mechanism Reform

The market-oriented reform of exchange rate is one of the key contents of China's economic system reform,which fully reflects the needs and characteristics of China's economic system reform.Since the exchange rate reform in 2005,the the Central Parity Rate as the benchmark exchange rate has played an important role in guiding market expectations and stabilizing the market exchange rate.On August 11,2015,the People's Bank of China issued a statement on revamping the RMB central parity formation mechanism.,which announced to improve the formation mechanism of RMB exchange rate.This is the so-called "8.11 exchange rate reform",that is,the daily RMB central parity rate against the US dollar refers to the closing exchange rate of the previous day.Subsequently,the central bank fine tuned the pricing mechanism of the exchange rate middle price.On December 11,2015,the central parity pricing mechanism of “closing price + basket currency exchange rate changes” was implemented.Then,on May 26,2017,the central parity pricing mechanism of “closing price + basket currency exchange rate changes+ counter-cyclical adjustment factors” was implemented.This paper attempts to discuss the effect of the "811 exchange rate reform" which focus on the pricing mechanism of central parity rate.First,we analyze the the average spillover effect and the volatility spillover effect between the Central Parity Rate,the CNY market,the CNH market and the NDF market.Second,we evaluates the Central Parity Rate by constructing the spillover index which proposed by Diehold and Yilmaz to make quantitative analysis.Finally we analyze whether the implementation of counter cyclical factor policy has an impact on the market characteristics of exchange rate,whether it is counter market.In summary,we can draw a conclusion that after the regime reform On August 11,2015,the linkage relationship between the main RMB exchange rates has strengthened in the long run.At the same time,the marketability and transparency of the Central Parity Rate have been improved,while the market benchmark position of it has been weakened.The counter-cyclical factor policies only filter the herd effect of the exchange rate market,and does not affect the market characteristics of the exchange rate reform pricing mechanism,and the policy is not the counter-market behavior.