An Analysis On The Relationship Between RMB's Real Effective Exchange Rate And China's Export

Since the reform of RMB exchange rate and a one-time appreciation of 2.1% in Jul. 2005, RMB appreciation has become a hot topic. Domestic and foreign scholars have made a wide range of discussions on the influence of rate change over export trade However, due to differences in methods or perspectives, it has never come to a unified conclusion. Through the combination of theoretical analysis and empirical test and a more detailed categorization, the present research will use econometric models to study the internal relationship between RMB's real effective exchange rate and China's export trade and finally come to a general conclusion.This thesis includes four chapters. In Chapter One (Introduction), the theoretical and practical significance of this subject is introduced, relevant studies from home and abroad are outlined; the structure of this thesis is presented, the main viewpoints and the author's creativity are also given.Chapter Two is the theoretical foundation of this thesis, for the purpose of explaining the influence mechanism of exchange rate change over the export trade. This chapter expatiates on the influence of exchange rate change over the price mechanism of the export trade, the trade revenue and expenditure mechanism, the total demand mechanism and the department effect separately. It also gives a theoretical analysis of the influence of RMB appreciation over the China's export trade. First, it is the price mechanism concerning the influence of exchange rate change over the export trade. The exchange rate change will influence the price level. At the same time it will make domestic deflation pressure through the monetary wage mechanism, the currency supply mechanism, the currency appreciation expectation mechanism and the demonstration mechanism and so on. The influence of RMB appreciation on the domestic price level works mainly through three ways--the import-export trade, the domestic inhabitant consumption and the foreign capital and foreign loan. Second, it is the revenue and expenditure mechanism concerning the influence of exchange rate change over the export trade, which is mainly embodied by the production cost mechanism, the income mechanism and the price adjustment mechanism. Third, it is the total demand mechanism concerning the influence of exchange rate change over the export trade. The relationship between the exchange rate change and the total demand is quite complex. While the currency appreciation produces a reducing influence over the economy, it also have an expanding influence over the economy through the currency industrial effect, the currency property effect, the debt effect and the currency price effect. Therefore, these dual influences must be considered together. Finally, it is the department effect of the export trade caused by the exchange rate change. On the one hand, the currency appreciation protects the foreign industry; on the other hand, it also has an adverse effect on the enterprises, which exports products with high cost but low benefit and imports substitute products. At the same time, the currency appreciation will decrease the price of the import article, especially those high-tech products. In this way, the cost of the import enterprises will be reduced, favoring the economic structure adjustment and the labor productivity enhancement.Chapter Three is the empirical model. First, models and tests are set. By summarizing ADF test, cointegration test and error correction model, this paper sets up the basic equation. Secondly, data is chosen. This thesis chooses the index of real effective exchange rate, the world's actual income, merchandise exports and the index of international primary products price and then makes a description and some adjustments. Finally, empirical test is done and results are obtained. The first step is ADF test. The result shows that the series are the integration. The second step is cointegration test. The test shows that the cointegration relationship among all of the series exists. Besides, China's export is inversely related to real effective exchange rate and world's actual income. The third step is error correction model. The results indicate that the correction mechanism exists, but with different speeds.Chapter Four are empirical test conclusions, analyses and suggestions. Above all, by analyzing the test results, following conclusions are reached: Firstly, the test shows that the cointegration relationship among all of the series exists. Secondly, in the long run, effect of real effective exchange rate on all types of products of export is different. Thirdly, in a short period of time, the correction mechanism among all of the series exists, but with different speeds. Fourthly, the world's actual income has a decisive impact on China's export. Besides, reasons are explained. Firstly, in the long run, because of different international market structure for different types of products, the effect of real effective exchange rate on all types of export products is different. Secondly, in a short period of time, because of different export demand flexibility, correction speeds are different. Thirdly, due to different stages of economic development and different periods of consumption, the effect of the world's actual income for all types of products of export is different. Fourthly, the effect of real effective exchange rate and the world's actual income for all types of products of export is the results of all mechanism. Finally, four suggestions are provided. Firstly, the structure of goods should be adjusted, promoting change in trade structure and growth model. Secondly, reform of government functions should be made, perfecting trade promotion system. Thirdly, the build-up of the financial market should be enhanced, widening channels to prevented risks. Fourthly, the exchange rate management system should be improved, making the formation of RMB exchange rate according to market.