The Rmb Exchange Rate Transmission Mechanism, Lhasa - Samuelson Effect Empirical Research - 1991-2010

One conclusion of the Balassa-Samuelson Effect Hypothesis is that the real exchange rate of one country’s currency will appreciate accompanying the increasing economic growth. But since China began the reform and opening-up policy, the GDP has continued gonging up while the RMB real exchange rate has shown a long-term depreciation trend. The fact of depreciation trend departs from the BS hypothesis conclusion. Considering the fact that the labor market is incomplete and separable in China, this article expands the BS standard model and uses the1991-2010data of China to make empirical analysis. Analysis of the RMB real exchange rate conduction mechanism is through VAR model and the Johansen co-integration test on the data of time series. Based on the VAR model and the co-integration test result, we built VECM model to test the short-term error correction mechanism. Finally we use impulse response model to observe the real exchange rate response to the short-term shock. The co-integration empirical analysis results shows that the real exchange rate is positive correlated with both two-sector labor productivity ratio and two-sector wage ratio. In the real condition of China’s dual economic structure and the separable labor market, the real exchange rate conduction mechanism is not hindered. The test results support the conclusion of BS effect expanded model. Furthermore, with the reduction of differentiation between the two sectors the RMB real exchange rate appreciation trend will appear more obviously. So RMB real exchange rate appreciation will continue accompanying continuous economic growth according to the BS hypothesis forecasting. In the light of the RMB appreciation tend, government should draw up a series of new principles and policies to relieve unfavorable influence on the economic while facing RMB appreciation shock. At the same time government should also formulate policies on deepening the reform of comprehensive real promotion of the exchange rate management and adjustment system,and the system can reflect the real supply-demand relations.