The Effect Of RMB Exchange Rate On The Terms Of Trade Based On The Analysis Of SVAR Model

In the context of open-economic, both exchange rate and trade terms have beingimportant ecnomic indicators, the impact on on the terms of trade by RMB’s strongappreciateion got more and more attentions. This paper use comparative static theoryand empirical testing to identify their inherent relationship and dynamic effects, andproved that the relationship between exchange rate and trade terms are contrary toMarshall-Lerner elasticity theory, and analysis this difference in the terms of theoreticalassumptions and real economy characteristics. Furthermore, we isolated the purestructural shocks of exchange rate to verify the dynamic effect on trade terms in China.In the view of static relationship, according to Lall(2000)’s criteria, this paperdiveded all the trade merchandise into five categories: primary products, resource-basedmanufactures, low-technology manufactures, middle-technology manufactures,high-technology manufactures, then calculated the trade terms between China and fourpartners: EU, USA, Japan, ASEAN, the result is that generally the NBTT is worsening,the ITT tend to be improved; and it existed differences between both countries andproducts. However, the real effective exchange rate index tend to be a straight up, paceaccelerating line; so the NBTT and RMB’s real exchange showed a significant negativecorrelation. Then, we pointed out the rigor assuptions and compelexity economy systemare the reasons that why the relationship of NBTT and real exchange rate in realeconomy is not comply with the theoretical conclusions on the base of relative statictherory. Exchange rate is the factor which have effect on NBTT,therefore, reasonable toavoid that risk have been an important measure to ensure the sustainable developmentof foreign trade in China.In the view of dynamic relationship, this paper use SVAR model to analysi thedynamic influence of real exchange on Sino-US trade terms from1994q4-2010q4. Theresult of impulse response function analysis are that a unit of positive exchange shockcreat different response among different categories’NBTT: the response of primary andresource-based products is improving during only three quarters, the response oflow-technology product is always worsening, on the other two products, the strcturalshock has a positive impact in current period, but follewd by a negative impact and thefluctuation is relatively obvious. Further, the result of variance decomposition are thatthe exchange rate shoch is the NBTT’s second variance source, but its interpretation is gradually increasing over time.Appreciation of RMB has become an indisputable fact, it brings both challengesand opportunities for our country. Therefore this paper believe that we should seize theopportunity to adjust the structural of export products in order to enhance internationalcompetitiveness, encourage domestic enterprises to creat multinational companies,speed up the pace of the machinery undates in eastern areas, support the central andwestern areas undertake the industry from the eastern part, in order to ensure bothforergn trade and domestic ecomomy keeping fast, smoothly, balanced developing.