Empirical Study On The Influence Of RMB Real Effective Exchange Rate To Trade Balance

Exchange rate is an important regulator of international trade balance. This article focuses on the huge trade balance of payments surplus and great pressure on appreciation of the RMB that our country is facing and takes the current economic hot issues—RMB exchange rate and the trade balance as key points. Based on the research at home and abroad, the article makes an analysis on the influence of the change of RMB real effective exchange rate on the trade balance.Firstly, this article theoretically introduces the influence of the exchange rate on trade balance.Then, this article describes the situation of the RMB and China's trade balance by statistic, and explains why RMB exchange rate movements can't efficiently improve our trade balance, the reasons including domestic trade structure, international industry transfer and new industrial processes, insufficient domestic demand and the lag of the foreign trade policy adjustment. It makes an empirical study on the influence of RMB real effective exchange rate to China's trade balance based on the related time series data from 2000 to 2009. Co-integration test proves that China's trade balance, China's real GDP, world's real GDP and RMB real effective exchange rate have equilibrium relationship in the long run, and that exchange rate's small changes can't improve the trade balance because the flexibility of RMB real effective exchange rate to trade balance is small. Besides, Marshall-Lerner condition sets up in our country. From the variance decomposition, we know that in the long run the impact of RMB real effective exchange rate on the trade balance is obviously improved, and that world's real GDP is the main reason for China's overall trade balance both in the long term and in the short term.The slight appreciation of the RMB will not significantly reduce the trade surplus, but considering its negative impact, we should actively cope with the pressure on RMB appreciation. Because the exchange rate can improve the trade balance in the long term, we can improve it by adjusting exchange rate and reducing the constraints on its effect. Finally, we put forward the policy proposals respectively on RMB appreciation and the trade imbalances.