Exchange Rate Intervention by Central Bank: Based on the Influence of the Hong Kong Offshore RMB Exchange Rate

Abstract

We calculate exchange intervention index to reflect the open market operation of central bank, introduce the Hong Kong's offshore RMB exchange rate (CNH) to establish Central bank reaction function and further analyze the influence that CNH has on the exchange intervention activities of China's Central Bank. We discover that the influence is not quite evident due to the insufficient development of financial market. Thus, we study the relationship between offshore Deutsche Mark rate and the exchange intervention of Deutsche Bundesbank on the basis that Mark has been completed the whole development of international currency offshore market.