Research On The Effect Of Exchange Rate On Foreign Economy

Since the financial crisis in 2008,the USA government has introduced a series of economic adjustment measures including quantitative easing monetary policy(QE),which has a strong impact on the USA' economy and theglobal economy and finance.Under the influence of the Fed's quantitative easing monetary policy,new material techonology evelopment and the industrialization promotion policies,the US economy gradually bottomed out,appearing significant signs of recovery,and the economic indicators have reached previously target.In January 2014,the Fed launched the QE exiting program,which would also significantly impact on our economy,even global economy.In recent years,there have been great changes of the exchange rate regime and exchange rate level of China after the reforms since 1994,2005 and 2010.So we can recognize that in the context of the increasing imbalance of economic development and the trend of RMB appreciation for a long time,and there are significantly theoretical and practical meanings to the study on the effects of RMB exchange rate on FDI of China and the USA.On the other hand,the USA shows a strong recovery after financial crises,and the dollar remains relatively dominant role in the golobal economy.As the domestic economic adjustment and optimization,the USA continues to maintain good trend of economic development,which is a strong and long term expected.In this context,it is worthy to further research on the changes of the dollar exchange rate.Therefore,this paper study on the comparison of the exchange rate changes of China and the USA.The study firstly studiesthe relationship between exchangerate changesand FDI of different trading partners using econometric models and datas.The results show that currency fluctuations can negatively effect on the import and export,and the appreciation of RMB has positive affect on import of China significantly.Meanwhile,as a comparative analysis,this paper has an empirical study on import and export of the USA and its major trading partner influced by their exchange rate changes.The results indicate that the dollar changes will have a significant influence on the American foreign trade balance,and have a more impact on import.On the other hand,the increasing economic scale of America's trading partners can effectively promote the bilateral trade volume.At the same time,the USA economy achived good results after the implementation of reform measures of the global financial crisis on 2008.Through the Panel-VAR model,we analyze one percent changes of the exchange rate would impact on the import and export of China and the USA dynamically.Second,this paper research on the impact of exchange rate changes on the FDI.By using the relevant data in China and the United States,we compares the relationship between the exchange rate changes and foreign direct investment(hereinafter referred to as "FDI").We find from the empirical study that:FDI original economic scale has significant effect on China's FDI inflows,and the volume of trade between China and FDI orign has a significant effect on the FDI;But the RMB exchange rate changes does not have a significant effect on China's FDI inflows,and we can think that this is because that the price transmission mechanism and interest rate transmission mechanism path does not play their role as expected.On the other hand,according to the study on the United States,the results show that:firstly,the FDI original economic scale has significant effect on the FDI inflows,and increasing positively effect on the United States FDI;Secondly,the dollar exchange rate change significantly affects on FDI inflows,and price conduction mechanism and interest rate transmission mechanism path play an expected role.Further,this reflects that the dollar is a global currency in fact,and the implementation of Fed rate policy influence largely on the United States and the world economy.The appreciation of dollar would attract FDI to enter the United States,and more international capital flows.In the last the article,through the panel VAR model,we compare one percent changes of the exchange rate would impact on the import and export of China and the USA dynamically,finding that currency appreciation in both countries have a positive influence on FDI flowing into the country,and the influence on the USA is greater than China's,and the USA has a short duration on FDI.Lastly,based on the thretical and empirical analysis above,this paper introduces the conclusions and suggestions.We think China need to pay close attention to the effect of dollar exchange rate on RMB.So we can stable our exchange rate,and also improve the long-term development of China's export-oriented economy.To control the exchange rate volatility in a reasonable range,we can not ignore the hidden trouble of exchange rate large volatility on foreign trades.We can reduce the volatility of the currency of the counterpary though currency swaps,promoting the development of bilateral trade.In the future,it is necessary to promote foreign trade and FDI by "the Asian investment bank" and "the free trade area".In the process of the reform of the RMB exchange rate in our country,we should continue the improvemts and optimization of the proce and interest rate mechanism,to achieve the expected reform goals.