A Study Of China Exchange Rate Determination And Fluctuation Factors

China has been implementing the managed-floating exchange rate regime for over a decade. RMB exchange rate is supposed to be priced on a market level. However, the long-term administrative control on China's financial and capital markets must be continuously exerting effect on the exchange rate determination and fluctuation. This paper is to systematically analyze the market-oriented exchange rate after two significant reforms, one in 1994 and the other 2005. This paper adopts long-run equilibrium approach, based on China's economic situation, to grasp the relationship between exchange rate and main macroeconomic factors. Besides, a reaction function (Eric Parrado, 2004) is included to investigate the mutual impact of RMB exchange rate and its factors.Chapter 1 is the introduction of this paper. This section provides the background and value of this study, as well as the perception and the methodology.Chapter 2 is the literature review. This section looks back into the classic exchange rate theories, introduces the significance of expectation and government policy factors increasingly raised by modern theories, and traces back the previous work on RMB exchange rate research.Chapter 3 adopts econometric model to investigate the fluctuation feature of RMB exchange rate, which turns out to be in accordance with the long-run equilibrium.Chapter 4 combines the theoretical and empirical study. This section modifies the classic model and applies it to China's economy, to find some relations between exchange rate and the macroeconomic factors.Chapter 5 introduces the reaction function to analyze the mutual impact of RMB exchange rate and macroeconomic factors, hoping to cast a light on the development of China's monetary policy.Chapter 6 is the conclusion of this paper, puts forward some suggestions about the exchange rate control, and points out the advantages and disadvantages of this paper.