China's Monetary Policy Uncertainty and Macroeconomic News' Effect on the RMB Exchange Rate
- DING Jianping, LIU Lu
- Shanghai University of Finance and Economics, 200433.
Based on the interbank 7-day reverse repurchase operation rates from 30 April 2012 to 17 December 2018, this paper is the first to improve the measure of China's Monetary Policy Uncertainty (MPU) from a perspective of policy interest rate using the regression-fitted volatility method. Then it further studies the impact which macroeconomic news has on RMB exchange rate under different MPU levels. After collecting and constructing 10 pieces of macroeconomic news, it finds that when market participants cannot accurately predict future policy changes, MPU increases and responses of both onshore and offshore RMB to macroeconomic news are significantly weakened. When MPU is relatively high, the market will be more divided in the judgment about future policies, in turn generating an inadequate response in the RMB exchange rate to macroeconomic news. When MPU is high, central bank exchange rate communication plays a supplementary role to macroeconomic news, enhancing market response to information about macroeconomic fundamentals at the same time. This paper not only enriches theoretical research on negative impact of MPU, economic consequences and macroeconomic news. effect on the RMB exchange rate, but also provides a valuable basis for future monetary policy formulation, adjustment and implementation, and empirical reference for the monetary authorities to intervene the foreign exchange market effectively.
JEL：F31, D84, E52
- Monetary Policy Uncertainty, Macroeconomic News, RMB Exchange Rate