The Relationship Between RMB Foreign Exchange Market Pressure And Monetary Policy

On November 30,2015,the RMB was included as the fifth currency in the currency basket of the Special Drawing Rights(SDR).On the one hand,it shows that the renminbi has been recognized by the international market as a reserve currency;on the other hand,the internationalized renminbi will also bring about more market-oriented exchange rate fluctuations.They are like two sides of a coin.The impact of the large fluctuations in the exchange rate of the RMB on China is obvious: When the RMB appreciates significantly,it will not only adversely affect the development of export companies,but will also cause large losses to the country.When the RMB depreciates sharply,it will bring problems such as inflation and capital outflows.In order to avoid excessive exchange rate fluctuations,monetary authorities will generally maintain the stability of the value of the renminbi by adjusting the size of foreign exchange reserves,money supply,and interest rates.In the past decade or so,China has always had high foreign exchange reserves.Despite the decrease in recent years,the scale of foreign exchange reserves is still at a high level.On the one hand,high foreign exchange reserves have increased international solvency and enhanced its international status.On the other hand,the increase in foreign exchange reserves has enabled the central bank to passively issue large amounts of currency,which will reduce the independence of monetary policy and affect its effectiveness."Double surpluses" and high foreign exchange reserves make the renminbi once faced with tremendous pressure for appreciation.However,the trend of depreciation of the renminbi began to highlight in 2014.In the face of the severe foreign exchange market,it is necessary for China to make a full assessment of the extent of imbalances in the foreign exchange market.Therefore,taking an appropriate method to accurately assess the RMB foreign exchange market pressure and analyzing the linkage relationship between the RMB foreign exchange market pressure and relevant indicators in the monetary policy will help the monetary authorities formulate a more reasonable foreign exchange market intervention policy.This article selects monthly data for China and the United States from June 2004 to December 2016.A six-variable Time-varying Parameter Vector Autoregressive(TVP-VAR)model was constructed.The research results show that under different economic periods and the background of exchange rate system,there is a clear transmission effect between monetary policy and the RMB foreign exchange market pressure(EMP).And there are structural mutations.The empirical results show that:The difference in interest rates between China and the United States has a significant negative effect on the RMB foreign exchange market pressure;The RMB foreign exchange market pressure has a significant positive transmission effect on economic growth;Domestic credits and the central bank's recovery of base money have no significant effect on the RMB foreign exchange market pressure;In the current period,RMB foreign exchange market pressures have relatively smooth effects on domestic credit,interest rate differences between China and the US,and inflation rates.The fluctuation of the economic cycle and the reform of the exchange rate system will lead to significant changes in the transmission effect between monetary policy and RMB foreign exchange market pressure.