Theoretical And Empirical Research On China's Trade Surplus And The Rmb Exchange Rate's Adjustment

In recent years, China's trade surplus form a huge pressure on RMB exchange rate appreciation in international society. In order to reduce trade friction and improve bilateral trade relations. On 21st july,2005,China carried out RMB exchange rate mechanism reform, established a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies.RMB exchange rate has remained stable trend of appreciation from then on,and its impact on the trade balance has also become the focus of everyone's attention.Based on the Elasticity approach and Absorption approach ,this paper mainly studies the impact of RMB exchange rate movements on China's trade balance,by means of theoretical analysis method and empirical analysis method, the research period are from the first quarter of 2003 to the first quarter of 2009 and from January 2003 to January 2009.This paper establishes several empirical models, using E-G two-step method, Granger causality test, vector error correction model and impulse response functions to analyze the impact of RMB nominal and real effective exchange rate on China's trade surplus.The empirical results indicate that:First,there is positive and Stable equilibrium relationship in the long-term between RMB Exchange Rate and China's trade surplus, the RMB appreciation will increase China's trade surplus .Therefore at the present stage, in order to reduce the trade surplus through RMB appreciation is invalid. Second,there is positive and Stable equilibrium relationship in the long-term between China's trade balance and China's Gross Domestic Product.China's economic growth will lead to an increase in the trade surplus. This indicates the lack of domestic demand in China.Compare with the impact on stimulating imports, the growth of China's economy demonstrate more influence on promoting exports.Third, there is positive and Stable equilibrium relationship in the long-term between Foreign Gross Domestic Product and China's trade surplus, that means the rapid growth of global economic might induce the boost of exports,on the contrary ,if the global recession occurs,the relevant exports seems likely to decrease, which will eventually cause the slump in China's trade surplus.