Research On The Influence Of RMB Real Effective Exchange Rate To Trade Balance

Since 1994, Chinese foreign trade balance is always surplus, and the foreign exchange reserves are increasing too. Both of these put RMB appreciation under increasing pressure and bring negative influence to the national macro regulation and the relationship with our trade partner. There are many factors that will affect the balance of Chinese trade surplus, such as RMB real effective exchange rate, the price of export products, the export demand elasticity, the level of foreign income and so on. The real effective exchange rate reflects the real value of RMB in the international market, its fluctuation has infects the competitiveness of Chinese trade goods in the international market. Therefore it is necessary to strengthen the adjustment of RMB real effective exchange rate to improve Chinese trade balance. This paper studies the effect of RMB real effective exchange rate on the trade balance, and provides some suggestions to improve Chinese trade balance according to the conclusions.Firstly, this paper mainly focuses on the background theory by introducing the construction of the real effective exchange rate and expounding the elastic theory and multiplier. Secondly, an overview of RMB real effective exchange rate and the Chinese trade balance are presented, and the influence of the real effective exchange rate of RMB on Chinese trade balance is analyzed as well. Based on the current situation and the theoretical research. RMB real effective exchange rate, the domestic real income, the foreign real income and the trade balance are collected to establish the theoretical model. With the quarterly data of 2003-2013, the impact of RMB real effective exchange rate on Chinese trade balance is analyzed through VEC model. In the end, based on the above analysis and evidence, some according suggestions are presented. It is proved in this paper that RMB real effective exchange rate can influence Chinese trade balance with the J curve effect, and the foreign real income has the biggest influence on Chinese trade balance.