Research On Non-linear Effect Of Exchange Rate Expectation To Asset Price

Exchange rate expectation passing through on to asset price has been a hot issue in academic circles, and it is also the important reference for monetary authorities to stabilize the economy target and issusing relevant policies, so revealing the nonlinear effect of exchange rateexpectation passing through on to asset price not only plays a decisive role to balance the international payments and maintain the stability of economic and financial development, but also to predict inflation change,the RMB exchange rate marketizationreform and further Chinese macro economy trend. This paper firstly constructs dynamic models of exchange rate expectation pass through to asset price from capital shocks, cost shocks and demand shocks respectively based on exchange rate pass through theory, and uses nonlinear flexible fourier stationary test, autoregressive distribution lag bound test, rolling bootstrap causality test and smooth transition autoregressive models to empirically investigate the nonlinear effect of exchange rate expectations pass through to stock return rate including the sample of January 1999 to the December 2014. At the same time, this paper also takes the sample data of January 2006 to the December 2014, uses nonlinear flexible fourier stationary test, panel bootstrap causality test, panel smooth transition regression to investigate exchange rate expectations pass through to 70 large and medium sized city in China so as to reveal the nonlinearand asymmetric dynamic relationship between them.The results of theoretical analysis and empirical tests suggest that:(1) The impact of exchange rate expectation on asset price is mainly reflected by thress channels of international capital account changes, import changes and export fluctuation, these three channels fluctuation provide the basis of nonlinear relationship between exchange rate expectationand asset price. (2) There is bidirectional nonlinear causality and dynamic long-term equilibrium relationship between exchange rate expectation and asset price, and the nonlinear causality and dynamic long-term equilibrium relationship is being time varying features, it suggests that the relationship between exchange rate and asset price is varying with different economy development.(3) The impact of exchange rate expectations on the asset price has significant threshold effect, and the threshold effect has the features of smooth transition. Specifically, the regime switching point of exchange rate expection to stock price is 0.046, meaning that the stock return rate of 0.046 divids the stock marketi into the first regimeinterval (bear market) and the second regime interval (bull market), indicating that there is significant asymmetric effect of exchange rate expectation on stock return rate. Besides, the regime switching point of exchange rate expectation on housing market is at the consumer price index (CPI) of 102.793, indicating the effect of exchange rate expectation on housing market present varying features with different general price levels. Above all, the exchange rate expectation has significant asymmetric effects on asset price, and also reflects the response of asset price to exchange rate is significant nonlinear.