The Impact Of Exchange Rate Volatiliyt On Trade Flows

The sustainable and steady trade development helps to ensure external equilibrium and economic growth. As an important economic lever, exchange rate is one of vital factors influencing trade development of a country or region. With the entrance of WTO and opening level improving, the exchange rate of RMB exchange rate can influence the foreign trade of China or even the world, so it is more attentioned by all circles. In July 21st 2005, our government began to carry out Managed Floating Exchange Rate which is based on the market's supply according to a basket of currencies. RMB was floating and demand upward 2%, and adjusted. The complete reform of RMB exchange rate must affect our foreign trade deeply in the future.In view of this, this thesis studies on the impact of mechanism of exchange rate volatility on the foreign trade in China through the empirical researches. The results indicate that, the impact of exchange rate volatility on every category of goods differs. This thesis adopts trade data which classify goods according to Standard International Trade Classification (SITC) ,in the light of SITC, goods are been classified into 9 categories.By the analysis of econometrics models, this study concludes that, the volatility of exchange rate have negative effect on export and import of China in the long run, however, this negative effect varies. In the short term, volatility of exchange rate have positive effect on the export of the fist category of goods, the third category of goods, the forth category of goods, the seventh category of goods, the ninth category of goods. Among this, the third category of goods and the first category possess greatest positive impact. Exchange Rate volatility have negative effect on the import of the 0 category , the second category ,the fifth category, the sixth category of goods, exchange rate volatility have positive effect on the import of the first category , the sixth category ,the seventh category ,the ninth category of goods. The positive effects indicate that, in the short term, when exchange Rate volatility increase, Chinese will import more the four categories of goods. Exchange Rate volatility has adverse effect on the other categories of goods.