Income Distribution And Real Exchange Rate

As an important economic index under the condition of open economy, the real exchange rate has a profound impact on the development of a country’s economy; With the rapidly development of economic globalization, the real exchange rate gradually develop into as the important variables affecting a country’s international competitiveness. Since the 1990s, China had conducted exchange rate system reform, twice. After the second revaluation in 2005, RMB exchange rate is no longer pegged to the dollar, but changed to base on market supply and demand, adjusted by the reference to a basket of currencies, and managed floating exchange rate system, starting the process of the RMB exchange rate formation mechanism reform. After that, the appreciation of the RMB exchange rate has been showing a unilateral trend.A country’s exchange rate relatively stability is very important to a country’s economic growth. As a product of economic growth, income distribution and the exchange rates are closely linked. Since the 1990s, China’s income distribution gap is gradually expanding. In this period, the change of the income distribution and the trend of RMB real exchange rate are similarly. So according to our country’s macroeconomic data, study the correlation between income distribution and the real exchange rate is of great significance.In this background, this article will study the income distribution how to impact the real exchange rate. Using the latest economic data in our country and in the perspective of income distribution to explore the source of the real exchange rate fluctuations.Specifically, this article mainly divides into six parts. The first part introduced the research background and significance of this article, as well as research methods and ideas. The second part reviews the literature relating to the real exchange rate volatility research, mainly including Balassa-Samuelson Effect. In addition, with the reality of our country, this article sort out the literatures about the relevant factors affecting RMB real exchange rate. The third part is the theoretical basis of the research, this part is mainly in the perspective of two transmission mechanisms human capital transmission mechanism and foreign capital flows transmission mechanism, and clearly analysis the interact of income distribution and the real exchange rate. Fourth part simply analysis the present situation of the income distribution in China and RMB real exchange rate fluctuation trend. The fifth part is on the basis of the theoretical framework, by using the macro economic data and selecting reasonable variable to analysis the transmission mechanism of income distribution and t real exchange rate empirically. The main analysis method is based on the VAR model and use the Johansen co-integration analysis and VEC model. The research results show that the distribution of income and the real exchange rate has a long-term co-integration relationship. The combination of income distribution and human capital, as well as the combination of income distribution and foreign capital inflows lead to the real exchange rate’s fluctuations.