The Impact On China’s Trade And Investment Of The Change Of RMB Exchange Rate

Over the past decade, China government started the reform of RMB exchange rate formation mechanism in2005, RMB exchange rate has appreciationed and the fluctuation has been widened. According to traditional Keynesian economics, the exchange tare will have an impact on exports and investment. As to exports of goods and investment is the two large power of economic growth, the exchange rate change and fluctuation will then influnce the growth of economics. So the main focus of our study is to reveal the impact of the change of RMB effective exchange rate as well as the exchange rate fluctuation on exports and investment.In the start of this paper, we studied the meaning and the background of domenstic and foreign relvant literature review. We concluded that processing trade and the anticipation of RMB apprecitation would reduce the impact of RMB exchange rate on exports. In the second part, by using sample data and building a GARCH model, the paper derived conditional variance as exchange rate fluctuations. Then we studied the relationship of the change of RMB real effective exchange rate and exports and investment.With the previous study, we constructed the empirl model to study the relationship between the level changes of exchange rate, the uncertainty of exchange rate as well as other factors and exports and investment. It turns out that RMB appreciation has a positive effect on exports in the terms of processing trade and the anticipation of RMB apprecitation. And the uncertainty of exchange rate hve an obvious positive impact on exports. And the investment model revealed that RMB appreciation has an obviouse negative effect on investment, but the uncertainty of exchange rate’s negative impact was not obvious on investment.It may because the uncertainty of exchange rate will have diffenent impact on different kinds ofFDI.In the process of analysis, we employ OLS regression, ADF test and Johansen and Juselius’co-integration and Granger causality test.At last, we proposed relevant political implications toward those empirical conclusions.