The Impacts Of RMB Appreciation On China's Terms Of Trade: A CGE Analysis

Exchange rate is one of the core economic variables in an open economy, which exerts a profound influence on export and import; and export and import are closely related to national revenue and welfare. In recent years, with China's ever-expanding economy and further integration of global trade, RMB appreciation has become a hot-debated issue. Thus, this paper shall explore a dynamic computable general equilibrium (CGE)model—MCHUGE to analyze the impacts of RMB appreciation on China's terms of trade.This paper consists of five parts. Part 1 is literature review which presents the current analysis on China's export and import under RMB exchange rate fluctuation; it also summarizes the current development of CGE research, making a solid foundation for the further analysis in this paper. Part 2 analyzes the mutual influence between exchange rate and global trade. Part 3 presents the theoretical structure of CGE model and devises the MCHUGE model to analyze the impacts of RMB appreciation on China's terms of trade. Part 4 sets out three scenarios to analyze the impacts of RMB appreciation on export and import and explains the simulation results from the viewpoint of China's terms of trade, macro economy and industrial level. Part 5 compares the simulation results under these three scenarios and draws the conclusions as well as the future extension of this research.The major innovation of this paper is that it tries to simulate the effects of RMB appreciation on China's export and import by a dynamic CGE model and to compare the simulation results in three different scenarios.simulation results show that proper RMB appreciation can better improve the import and exoport, maintaining macro economic stability;on the other hand, sharp increase of RMB exchange rate shall exert negative influence on macro economy and many industries, what is more, firece appreciaiton cannot settle the issue of huge trade surplus in China.