The Improvement Of The Exchange Rate Formation Mechanism And The Real Exchange Rate Of Rmb

As a chief macroeconomic variable, the real exchange rate(rer) has a tight connection with the growth and fluctuation of the economy. Since the endogenous theory of economic growth booms, human capital has been considered as one of the two resources of economic growth. The relationship between technology progress and rer takes the form of Balassa-Samuelson effect. However, there are merely a few papers discussing the impact of human capital on rer.Based on a principal-agent model, we systematically study the determination of rer from the perspective of human capital, and analyze the corresponding mechanisms, which consist of factor endowment effect, endogenous B-S effect, and the divergence effect. Moreover, technological difference between industries, export-oriented policy and wage bargaining are taken into the account for the determination of rer through human capital. Then, we test this correlation with a panel dataset and find that the accumulation of human capital brings forth an appreciation of rer. Endogenous B-S effect is negative and works mainly in mid-income and low-income countries, whereas factor endowment effect is more general and positive, and surpasses the endogenous B-S effect. The negative endogenous B-S effect is consistent with the judgment of Clague and Tanzi(1972) on human capital's influence on B-S Effect, and its occurrence in mid-income and low-income countries could explain the disappearance of B-S effect in those countries as well.As for renminbi rer, our study reaches a quite different conclusion with some other researchers. In our opinion, the accumulation of human capital, demographic dividend and economic transformation are the fundamental elements determining renminbi real effective exchange rate, and terms of trade plays an important role as well. For the sake of the successful export-oriented policy, the endogenous B-S effect in China is positive, which strengthens the impact of human capital. With its accumulation, human capital will play a much more important role in the determination of renminbi rer.