Empirical Analysis Of The Impact Of Exchange Rate On China’s Trade Balance

In the international economy, exchange rate is the price of different countries’ currencies. The exchange rate policy adjustment and exchange rate changes can easily lead to the competitiveness changes of the two countries’ goods, thereby affecting the balance of payments situation, by affecting the trade scale between the two countries. The United States is one of China’s most important trading partners. Based on its special status in the international economy, the exchange rate of the RMB has been paid much attention.This paper attempts to explore the relationship between the change of RMB exchange rate and China’s trade balance. We select the data from January2001to June2012to build three VAR model for China’s exports to the United States, China’s imports from the United States and China to the United States’net export, and analyze the dynamic effects of the real exchange rate of RMB, as well as the movements of the gross domestic product (GDP) of China and the United States on China’s exports to the United States, China’s imports from the United States and of China’s net exports to the United States. Econometric analysis results shows that a unit positive change in the real exchange rate of RMB leads to1.0626units positive changes of China’s exports to the United States,0.2097units of negative changes in China’s imports from the United States, and0.7028units of positive change in net exports to the United States. This indicates that the devaluation of the RMB would increase China’s exports and net exports to the United States, but reduce China’s imports from the United States.This paper consists of six parts. The first part is mainly described the research background, the purpose of choosing this topic, the domestic and foreign theory and literature on exchange rate and the trade balance and the main contents of the paper and the structural arrangements, and then show possible innovation and shortcomings. The second part is a brief review of China’s exchange rate regime and the course of China-US trade, macro grasp of the history of China’s exchange rate regime, and analysis of the current development situation of China-US trade. The third part discusses the factors that affect the exchange rate fluctuations. The fourth part of this paper introduces the econometric methods, build a VAR model, and finally explain the source of the data. The fifth part use the econometric methods to make empirical test, and respectively drawn three long-run equilibrium relationships between exchange rate and other three variables (exports, imports and net exports), and use of the impulse response function to analysis of short-term volatility situation of the relevant factors, then use the variance decomposition to analysis the contribution of various factors. The sixth part is this article’s conclusions and recommendations, based on theoretical and empirical analysis, and make a few suggestions.