RMB Exchange Rate Mechanism And Its Macroeconomic Effect

As the core economic variable in open economy, exchange rate is playing an increasing important role in each country's economic relationship. With the exchange rate mechanism reform as the background, this paper synthesizes and extends the traditional method of assessing exchange rate mechanism, and proposes a new method to identify our country's de facto exchange rate mechanism. Based on the identification of de facto exchange rate mechanism, this paper mainly focuses on the macroeconomic effect of exchange rate fluctuations in view of RMB exchange rate's frequent adjustments.In the existing method of assessing exchange rate mechanism, Frankel and Wei(1994)'s model has been widely applied, it can analyze various currency's weight in the currency basket with the fully pegged assumption. The other method was advocated by Calvo and Reinhart (2002) and Levy-Yeyati and Sturzenegger (2005),this method mainly analyzes the exchange rate's flexibility degree. But the reality is that most country have adopted the middle's exchange rate mechanism, which make the above two methods have their limitations. Therefore, according to Frankel and Xie(2010)'s idea, this paper introduces the exchange market pressure variable into the currency basket equation to describe the exchange rate's flexibility, so the new method can simultaneous analyze the basket weight and exchange rate's flexibility degree. The empirical analysis's results indicate that, in the three mode of adjusting RMB exchange rate appreciation pressure, reserves is the mainly mode to alleviate RMB appreciation pressure, exchange rate also plays its role, but interest rate is seldom used; in the currency basket, dollar's weight begins to decrease, euro's weight significantly promotes, our country's exchange rate more and more reflects the world major currency value's changes; to make the economy from shocks, our country in fact adopts pegged dollar's exchange rate arrangement in finance crisis.Obviously, exchange rate as a relative price level, its changes have clear effects on the macroeconomic. According to the pass-through effect of exchange rate to domestic general price level, the study results conclude that, ERPT effect is exsited and significant, this is one important reason of our country's price surge. In addition, the expected factor should be concerned, RMB appreciation expectation's formation have a significant effect to domestic price level. With the effects of exchange rate changes on foreign trade balance, time series and panel cointegration's analysis conclusions illustrate that real effective exchange rate has a significant role to improve our country's trade balance conditions, but the bilateral exchange rate movements has little effect to domestic trade balance. In addition, the foreign real income level and domestic real income level have very important function to our country's trade balance.Finally, this paper focuses on the effect of exchange rate to industrial structure adjustment and economic growth, the analysis's results show that, our country is entering an industrial structure adjustment's new phase, RMB exchange rate's gradual appreciation will be beneficial to domestic industrial structure evolution. On the contrary, from the analysis results of RMB appreciation to economic growth can find that, our country exchange rate's appreciation perhaps will hinder domestic economy's long-term endogenous growth, so in the case of RMB gradual appreciation, maintaining our country exchange rate's basic stability is particularly important.