| Reducing the foreign exchange rate volatility is very important to achieve tolerable inflation and a desired economic growth for China. To react to RMB appreciation pressure, people's bank of China has implemented sterilized intervention for several years. However, we have no idea of the degree of intervention, the scale of money steriliztion and the effect of sterilization which are efficiency tools to analyze offical intervention on the exchange market. However, our government does not publish the intervention dates.This paper quantificated the exchange rate intervention activity through using EMP index.EMP is an index to measure the excess demand for a currency and the part of which offset by the authority's intervention is used to quatificate the intervention activity. Therefore, we can build a structure model to calculate the offical intervention index and the scale of money sterilization. And in this paper, we exam the effect of the sterilized intervention through analyzing the relation between the EMP and the money sterilization. If the money sterilization has no negative impact on EMP index, it is supposed that sterilize intervation is efficiency and vice versa. This paper analyze our country's intervention activities from 1996 to 2006 through building and estimating the structure model,and figure out that the central bank conducted a high degree intervention and got a fixed exchange rate in this period. Besides, about 60% foreign exchange purchase was offset in the domestic monetary market. This paper also analze the sterilized intervention efficiency between 2004 to 2006, then get the conclusion that the intervention and the sterilization are inconsistent . At last, this paper bring forward four coutermeasures to reduce the negative impact of the sterilized intervention and improve the efficiency of sterilized intervention:construct a healthy balance of payments structure;set up the exchange buffer fund;perfect the exchange market and the government bond market. |
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