Correlation Study Between The Real Exchange Rate Of RMB And China-USA Trade

Exchange rate is the most important comprehensive price index for one country's international economic activities. For international finance and trade activities, it is in the implementation of the price of conversion function, which regulates a country's trade balance as an important level. Its fluctuation impacts a country's external trade balance and domestic economic activity deeply. The change of RMB exchange rate has a profound impact on bilateral trade between our country and American. Since reforming exchange rate system in 2005, RMB has continued to appreciate. But the continuing appreciation of the nominal exchange rate has not made obvious assault on our country's trade balance, which is inconsistent with many scholars expectation. The situation of China-USA trade surplus does not improve effectively. This reality leads me to do some research on the relationship between the real exchange rate of RMB and China-USA international trade. With the rapid development of two county's trade, the problem of trade imbalance has become more obvious and serious, which also be the focus of trade friction. The external pressure of RMB appreciation has arisen. This dissertation uses qualitative and quantitative analysis for the research on the bilateral trade volume of China-USA and RMB exchange rate.First of all, according to classical theory, we get a general relationship between the real exchange rate and trade balance. We expand the theory, combining with exchange rate flexibility and the price transmission mechanism, and then we derive the more general M-L condition determination considering the incomplete transfer for exchange rate on the price effects. In viewing the relevant theory and basing on the development of Chinese and American economic realities, we put forward the new ideas about the theory. Empirical analysis using the Johansen Cointegration Test of the RMB real exchange rate movements on the impact of China-USA bilateral trade volume. As for model-based variable selection, taking into account the presence of processing trade, we bring the Japanese investment and U.S. investment in China for impact on amount of exports and imports between two countries. In viewing of the exchange reform in 2005, the article uses the virtual structure variables. For exchange rate fluctuations, we applied the GARCH model. All those can help the article to reach the comprehensive and effective analysis between the real exchange rate and two country's trade and for its correlation. Empirical results show the exchange rate flexibility in Chinese exports to USA is not significant and also unobvious. But great flexibility in the exchange rate of imports exists. The total of exchange rate flexibility of imports and exports satisfy the condition of M-L condition. But with the gradual and modest appreciation of RMB, no improvement of China-USA trade balance which lead article to do further exploration. Many previous scholars mostly focus on the analysis for total trade balance, very few concentrate on the relationship between two country's trade commodity structure and the real exchange rate. This maybe article's new conception. We make the further analysis for RMB exchange rate impaction on commodity structure which is classified on international trade classification category of merchandise trade balance, dividing the commodity to sitc0 to sitc8. To find the real reason of China-USA trade surplus continued growth while RMB continued appreciating. The result is the condition of M-L can not be established in main trade commodities. The different characteristics of trade commodities and the difference exchange rate flexibility between them is one of reasons for growing China-USA trade surplus.Finally, according to the analysis of correlation between two country's trade volume and RMB exchange rate, comprehensive use of theory, chart and empirical research, we make the comment and put forward some relevant policies and proposals for two country's better development of bilateral economic and trade relations.