Study On The Infection And Control Of Currency Crisis

Since the 1990s, with the increasing trend of financial globalization and liberalization as well as the growing intensity of international capital flow, currency crises have frequently taken place throughout the world. Within just 20 years, several influencing financial crises have come up, almost once every two or three years. Furthermore, since 1990s, currency crises have mostly taken place in developing countries with rapid economic growth and big inflows of foreign investment. And these currency crises also evolve new features, namely, more and more display the feature of obvious contagion——most crises can spread to other countries. The frequent occurrence of crises has brought huge impact and hazards to the financial markets and economic entities of the victimized countries. China has acquired sustainable growth in economic and huge achievement in economic construction. But it has become a research subject that we should pay more attention to that how to handle the contradiction between China's rapid economic growth and its immature financial markets, as well as the enormous impact of the pouring of international capital to China's financial market, and how to prevent crises or contagion from interrupting the pace of our economic growth.Since 1970s, theories on the formation and contagion of currency crisis have emerged in endlessly. Three generations of currency crisis theory have epoch-making significance in explaining the causes of the crises, but still cannot avoid historical limitations. Since 1990s, many economists and financial experts have gradually shifted their focus of research to the mechanism of currency crisis contagion and have made lots of achievements. But because of their professional knowledge and social background, different researchers have different focuses and preferences on the cause of formation and contagion about crisis in their research. Along with the development of nonlinear science, a growing number of economists and financiers have realized the nonlinear characteristics in financial system and begun their research in financial markets under nonlinear paradigm, which has brought new ideas and methods for the study of the financial crisis mechanism and contagion mechanism as well as controlling mechanism.The main contents and conclusions of this paper are as follows: 1. In this paper, we have reviewed and briefly described Marx financial crisis theory and modern currency crisis theory, and have made our own evaluation on the three generations of currency crisis theory. We have also given an overview of the existing research achievements through two angles of the channel, path and inspection of crisis contagion, and measurement crisis contagion method.2. We have revised the first generation currency crisis by introducing "time-varying system friction coefficient". The establishment of interest rate parity conditions in the classical model of the first-generation currency crisis must take "effective market" and "free flow of capital" for the premise that might be set up only in the western countries with relatively developed financial markets but not in the developing countries with underdeveloped financial markets. Domestic scholar Guo Qingma (2009), under the assumption of considering the system friction factors, has made revisions on interest rate parity conditions in crisis model, and has figured out the time of collapse of a fixed exchange rate under the framework of a new model. Based on his research, this paper tries to make further expansion. Considering the means and intensity monetary authorities will adopt accordingly in capital controlling according to its foreign exchange reserves status and the situation of the national and international movement of capital in responding to crisis, we have found a currency crisis expansion model by revising the fixed institutional friction factor for time-varying system friction coefficient, and calculated the time of fixed exchange rate's collapse.3. Based on differential dynamic theory, we have made the contagion model of the two countries'currency crisis. The main contents of this chapter are divided into two parts. First, by applying the generalized logistics, we have constructed the differential dynamic model of the two countries'currency crisis contagion. On the basis of this model, we have drawn the following three important conclusions: First, no matter what the contagion coefficient of the two countries is, the growing of contagion coefficient will lead to the departure of the two countries'equilibrium position of exchange rate from the origin, namely, there is a magnified trend of the exchange rate fluctuation. Second, if the contagion of one country is stronger than the other, then the equilibrium position of exchange rate of the later country will be much larger than that of the former one, the exchange rate shock being naturally more intense correspondingly. Third, when the growth of the exchange rate between the two countries becomes negative, the rate will become no longer stable, thus resulting in severe fluctuation. And when there appears a positive instantaneous growth rate, the two countries will experience exchange rate shocks within a certain range, but will remain relatively stable overall. Then, on the basis of the dynamic model of crisis contagion constructed in the first stage, we have introduced the "eosinophilic absorption coefficient" of financial markets to crisis contagion and establish a differential dynamic model, which is more complex and more extensive in significance. This model can be used to explain the aggravated influence the "herding effect" caused by financial panic has on crisis contagion.4. We have made a chaotic dynamic analysis on the exchange rate's time series of currencies such as renminbi, dollar, euro and the yen. By using the numerical analysis method of chaotic characteristics, we have respectively calculated the chaotic characteristic index of the time series of the above-mentioned currencies, such as the Lyapunov index, correlation dimension, etc. It turns out that the Lyapunov indexes of the time series of these currencies are all over 0 with an obvious fraction dimension. Therefore, it proves the existence of chaotic characteristics of the time series of exchange rate.5. Using the theory of chaotic dynamics, we have discussed the formation mechanism of currency crisis. Based on Duffing-Holmes's deformation model, we have studied the chaotic phenomenon of nonlinear financial system and analyzed the formation mechanism of currency crisis. In the first place, we have used singular perturbation method and respectively worked out the approximate solutions of nonlinear financial system to time change in the situations with and without external disturbance. Besides, we have studied the influences of the change in system parameters on the change of state of financial market. According to the analysis and mathematical analysis, we have come to a series of conclusions. 6. By adopting chaotic control theory, we have studied the problem of crisis control. Based on Holmes Duffing's deformation model, we have worked out several equilibrium points under the situation of nonlinear financial system state, and on this basis respectively figured out the Hopf bifurcation conditions of financial model on the condition of different equilibriums, and then have studied the chaotic control problem of financial system by means of the cycle motivation method and constant external incentive. Through numerical simulation and simulation analysis, we have explained the relationship between the emergence of chaos and financial crisis, out of which we have worked out measures to control the crisis.The main innovations of this paper include:1. Introducing the "time-varying system friction coefficient", we have revised the first-generation currency crisis model, and calculated the time of a fixed exchange rate's collapse. Domestic scholar Guo Qingma (2009), under the assumption of considering the system friction factors, has made revisions on interest rates evaluation conditions in crisis model, and has figured out the time of collapse of a fixed exchange rate. But he also ignores the fact that the monetary authorities will accordingly adopt means and intensity of capital control according to its foreign exchange reserves status and the situation of the national and international movement of capital. In view of this, this paper has made a currency crisis model based on the time-varying friction coefficient, and calculated the time of a fixed exchange rate's collapse.2. By using the "eosinophilic absorption coefficient", we have found the contagion model of the two countries'currency crisis on the basis of differential dynamic theory. We have constructed this differential dynamic model of the two countries'currency crisis contagion by applying the generalized logistics. Hence, we have come to three important conclusions. Then, based on this contagion model, we have established the contagion model of the two countries'currency crisis by introducing the "eosinophilic absorption coefficient" of financial markets to crisis contagion. In this paper, this model is used to explain the aggravated influence the "herding effect" caused by financial panic has on crisis contagion. 3. Beginning with the chaotic dynamic characteristics of financial system, we have studied the formation mechanism of crisis in financial system. Our first study is the nonlinear financial system under the circumstance of no external disturbances: By means of singular perturbation method, we have respectively worked out the approximate solutions of nonlinear financial system to time change, and studied the influences of the change in system parameters on the change of state of financial market. According to the analysis and mathematical analysis, we have drawn a series of conclusions.4. We have studied the principle and mechanism of crisis control based on the theory of chaotic control, and a sort of chaotic control problems in financial system. We have first figured out several equilibrium points of nonlinear financial system, and on this basis have respectively worked out the Hopf bifurcation conditions of financial model on the condition of different equilibriums, and then studied the chaotic control problem of financial system by means of the cycle motivation method and constant external incentive. Through numerical simulation and simulation analysis, we have explained the relationship between the emergence of chaos and financial crisis, out of which we have obtained measures to control the crisis.