The Study On Relations Between RMB Exchange Rate And Trade Balance In China On The Basis Of Intertemporal Model

After entering2005, the tendency of China’s trade surplus is strengthened constantly. Although the high surplus can strengthen a country’s external liquidity, its negative impact cannot be ignored. Facing the RMB appreciation pressure and escalating trade frictions, how to improve the balance of trade has become a real problem inevitably.Some factors may have effect on the trade balance together, such as the exchange rate system, domestic and foreign GDP, real interest rate and so on. From the current situation of RMB exchange rate and China’s trade balance, it could be found that the trade imbalance from excessive trade surplus exists. On the basis of the Intertemporal Equilibrium Theory of trade balance, a SVAR model is established for empirical analysis, with quarterly data from1992to2009. The empirical results have shown that, in the short term, shocks from the relative demand, real interest rate, domestic and foreign supply are the major factors which lead to the fluctuation of trade balance. In the long term, the main factors to the changes of trade balance are shocks from the relative demand and real interest rate, and the key factors to the degree of variation are shocks from the domestic and foreign supply and relative demand. From the conclusion, it could be found the vibrations from the relative demand for imports and exports and world interest rate are liable to change a country’s trade balance. However, on the impact strength, the influence of interest rate is smaller than the domestic and foreign output. Further studies show that, neither in the long run nor short run, the shock from exchange rate is the key factor to the large fluctuation. Therefore, in order to achieve the long-term equilibrium of trade balance, the conductive effect of the fiscal policy could be utilized, and the domestic demand could be enlarged by improving the structure of economy and the mechanism of income distribution. For the short-term equilibrium, the steady of financial market would be achieved by the promotion from the currency and exchange rate policies, and the international rate difference would be reduced by the improvement of the interest and exchange rate mechanism to the market process.