MS-AR model based dynamic identification of RMB appreciation pressure

It has practical significance to the effective identification and dynamic assessment of RMB appreciation pressure. In this study nonlinear MS-AR model with the assumption that residual obeys T distribution is used to do empirical analysis on the spot exchange rate of RMB/USD in the period of 2005.7.22-2012.12.12. The results show that there are three regimes including appreciation with high volatility, appreciation with low volatility and stability with small depreciation. Appreciation with high volatility appeared after two RMB exchange rate regime reforms, which indicates that exchange rate regime reform released partial pressure of RMB appreciation. Appreciation with low volatility was found in the period of America subprime crisis, because People´s Bank of China narrowed exchange rate fluctuation region. Stability with small depreciation witnessed that the outbreak of sovereign debt crisis in European countries, that increased the demand for USD, in turn led to the small depreciation of RMB. All the above results demonstrate that the accumulated period and dynamic change characteristics of RMB appreciation pressure.