Impact Of U.S. & JAP. Monetary Policy On The RMB Exchange Rate

In 2007, a global financial crisis was caused by the US subprime mortgage crisis. In order to get recover from the bad effects, many developed country’s governments excuted relatively loose monetary policy. US and Japan even applied and excuted unconventional quantitative easing monetary policies several times. Even though these movements partially alleviated the crisis in their countries, however, it caused a lot of spillover effects. One add another, it made the international liquidity increased a lot, which caused large scales of international capital flows to developing economies such as China, made RMB exchange rate suffering greater pressure.Besides, these state also raised the nondeterminacy of China’s monetary policy adjustment.In July 2005, China carried out a reform of the RMB exchange rate. Since then, the fluctuation of RMB exchange rate is much larger than before. Is the currency policy of both US and Japan the main reason of it? And if so what’s the proportion? Are there any other factors that can cause the fluctuation also? Knowing these things will be helpful for our country to use the tools of exchange rate much more properly, handle the spillover effect more reasonably, and finally, achieve the goal of the macro-control of our country.This article combs and summarizes the related literature including home and abroad at first,analyses the determination theory of exchange rate, and also describes the affection the quantitative easing(QE) monetary policy of US and Japan do to the rate of RMB, then by the use of tools like cointegration and vector error correction model, impulse response, we find a clue about the long time affection caused by the factor of currency, and also the short time affection factors which can change the exchange rate of China with US, and with Japan. And it turns out that monetarism factors do have long term affection on the exchange rate of RMB, in the context of irregular currency policy launched by US and Japan, the output and the money supply have a large affection on the exchange rate of RMB, but less affection on interest rate. It also showed that the output, interest rate and money supply of our country is the key factor to the exchange rate both US and Japan, of course, the change of currency policy of US and Japan can effect that, but only on some level.At the end of this article, we propose some advices about how to react to the adjustment of other country’s currency policy, how to promote the globalization of RMB, and how to regulate the exchange rate of RMB.