An Empirical Analysis On The Determinants Of RMB Exchange Rate Regime

This paper use the co-integration theory of the econometric model, investigates the determinants of exchange rate regime choice of China in the year of 1979-2006,the regression results shows that the size of the economy,the level of economic development,capital market openness,the exchange rate risk position and the independence of the central bank,and trade openness are the main factors that influence the elasticity of the RMB exchange rate system factors,However,the elasticity of the RMB exchange rate system are significantly affected by trade openness,trade geographic concentration, production and product diversification,income and expenditure,the vulnerability of trade shocks,inflation and unemployment.On the contrary,the evidence shows that the elasticity of the RMB exchange rate system is more inclined to cause the change of the revenue and expenditure and the inflation rate and unemployment rate.In addition,on the 5 main factors that impacts the elasticity of the RMB exchange rate system,the elasticity of the RMB exchange rate and the actual change in the GDP and factor mobility makes a positive correlation, which is consistent to the Theory of Optimum Currency Areas,but shows a negative correlation with the external debt(external debt position indicator of risk),which are also consistent to the expectation of M-F model,but the elasticity of the RMB exchange rate system and the domestic financial sector accounts for credit / GDP ratio is a inverse proportion relationship,This phenomenon is in line with the conditions of China,but in the long run there is irrational.Particularly, with the economic system reform forward and the market increases of China,the elasticity of the RMB exchange rate system should also improve the.Then this paper may be provides evidence for the reform of RMB exchange rate system from July 21,2005.