Policy Objectives, Conflicts of the Objectives, and the Optimal Flexibility of RMB Exchange-rate Regime

摘要

Taking capital regulations into account, the paper probes into the optimal choice of RMB exchange rate regime based on the two objectives, namely the stabilization of real exchange rate and that of the price level in a dynamic M-F-D framework with stochastic chocks. The paper finds that different policy objectives will lead to different optimal choices of RMB exchange rate regime and different macroeconomic performances and capital regulations adopted by the government have no essential impact upon the optimal choice between the bipolar regimes. However, the optimal choice among intermediate regimes is surely affected by capital regulations. The paper also finds there is the possibility that some certain intermediate regime is available for China given capital regulations and the shallow, less flexible foreign exchange market if the government is price-stabilization-oriented. Finally, based on the investigation into the policy practices from 1994 to 2005, the paper suggests that it is time for China to reconsider the appropriateness of the real targets and to reposition the policy objective of the choice of RMB exchange rate regime.