Exchange Rate Fluctuations, Macroeconomic Control And Economic Growth

China’s current economic condition is quite similar to that of Japan’s in the1980s. The RMB revaluation in recent years has made many people started to worry about whether China would follow Japan’s footsteps. To avoid the negative impact caused by RMB revaluation on the real economy, Chinese government and The People’s Bank of China have intervened the macro-economy frequently. Whether the interference can act positively on the sustainable growth of China’s future economy is open to debate.This paper compared and contrasted macroeconomic situation (including four goals of the macroeconomic policy, national competitiveness and mode of economic growth, etc) of Japan and Germany before and after their respective currency revaluation using TOPSIS. It has been found that Japan’s economy had indeed suffered a "loss" to a certain extent no matter compared with its own history or Germany. Many factors contributed to its losses. The emphasis of this paper is to study the effect of macro adjustment on economic sustainable growth and development in order to address the issue of currency revaluation. This paper compared and contrasted the currency policy and financial policy adopted by the government and central bank of Germany and Japan when facing the same currency substantial revaluation. A conclusion was drawn based on the bove analysis:Germany and Japan adopted different currency policy and financial policy facing similar currency revaluation; Germany’s currency policy is more independent than Japan’s; Germany interfered much less than Japan when the exchange rate fluctuated.This paper also compared and analysed the effects of macroeconomic policies (including currency policy and financial policy) adopted by the two countries on their respective real economy. The author compared the data of the two countries during that period and tried to identify the quantitative relationship between macro adjustment and economic growth. The result of this empirical research could be summarized as the following:The effects of macroeconomic policies of the two countries on their respective real economy are quite different; A more market-oriented currency policy or financial policy can have more positive effect on economic growth and development; Any artificial interference can only play a role over the short term but is proved to be ineffective in the long term.Since macro adjustment policy against fluctuations in exchange rate is proved to be ineffective in the long term, then what should government do? The author attributed economic growth to the three primitive factors:population, capital and technological innovations according to Cobb-Douglas production function, and thereby came with the conclusion that the aging population, inefficient investment and lack of innovation were the key reasons that led to the economic recession of Japan whose economy once enjoyed prosperity in the1970s. By contrast, the aging of population did not become the obstacle of economic development in Germany; making good investment, mastering core technologies and advancing technological innovation contributed to the sustainable economic growth in Germany.At last, the author proposed that we should learn the lessons from Japan and draw on experiences from Germany to tackle RMB revaluation. The government and central bank’s excessive interferences won’t help much. In order to realize the sustainable economic development of China, exchange rate and interest rate should be left to the market. Government adjustments should also be more market oriented. Government control should put more emphasis on improving population structure, improving the quality of labor force, guiding investment and encouraging technological innovation.