Empirical Analysis Of The Effect Of RMB Real Effective Exchange Volatility On The Employment

The exchange rate,as exchange price between two currencies,is an important index to measure the purchasing power and competitive power of two different currencies.In an open economy,the fluctuation of exchange rate will influence the relative price of both domestic and foreign products,and thus change the import and export scale of one economy,causes the enterprise to adjust the scale of production,which will lead to the re-allocation of the labor market,finally affecting the entire economy.Combined with the actual situation in our country,the formation mechanism of exchange rate is getting more and more flexible,specially after 8.11 exchange rate reform and adding RMB to the SDR,it will be more often to see the trend of two-way exchange rate fluctuation.Focusing on the labor market in China,the population itself is large,plus the number of new labor is increasing annually,employment situation is still tough.Therefore,investigating the change of RMB exchange rate on employment effects has great meaning on coordinated development of economy and full employment.After summarizing theories and models about the relations between exchange rate volatility and employment,this paper studies in two ways.Firstly,the paper uses VAR based on the time series data from 1994-2015 to analyze the impact of exchange rate volatility on total employment and their transmission mechanism.It turns out the appreciation of RMB will have a negative effect on employment rate through three channels: export scale channel,channel of allocating resources and FDI channel.Secondly,the paper uses panel data from 1994-2015 to analyze the impact of exchange rate volatility on different areas' employment rate and their transmission mechanism.The paper divides provinces into eastern area,middle area and western area using residual substitution method to estimate the impact of each channel on each area.The empirical results show that: the appreciation of RMB will have a negative effect on employment rate of eastern and middle area through all three channels.For western area,the appreciation of RMB shows a negative effect on employment rate through FDI channel while through export scale channel and channel of allocating resources,it has a positive effect.In the end,based on theoretical and empirical analysis,the paper puts forward five targeted policy suggestions: pay attention to export scale channel;pay attention to FDI channel;keep the RMB exchange rate stable;coordinating development of different areas;implement a proactive employment policy.