Dynamic Relationship Between RMB Real Effective Exchange Rate Volatility And China's Import And Export Trade

Since the reform of RMB exchange rate regime on Aguest 11,2015,the formation mechanism of the reference rate against the US dollar which based on the previous day's closing rate at the interbank foreign exchange market and a basket of many other currencies have been formed,and central bank basically exits the foreign exchange market intervention,the bidirectional fluctuation of RMB exchange rate becomes the norm.With RMB joining the SDR basket,the process of marketization and internationalization will be further accelerated.RMB may become the universal international settlement currency in the future.referencing the experience of the dollar,euro,yen,RMB exchange rate volatility is likely to be more and more large in frequency or in the range.And exchange rate as a bridge connecting the international trade,exchange rate volatility will inevitably impact on the development of a country's import and export trade to a certain extent.From 2005 to 2015,China's economy has experienced a period of economic prosperity,economic crisis and economic adjustment,the changes in the economic situation to a certain extent affect the growth rate of China's import and export trade.Affected by the global economic situation,China's import and export trade growth rate decreased year by year,and 2015 is the second time when double negative growth comes up since the global financial crisis.As China's foreign trade dependence has been at a high level,import and export trade has a significant impact on China's economy,international trade is an important economic growth point.Therefore,it is of great significance to study the dynamic influence of RMB exchange rate volatility on China's import and export.Around the research goals,this paper adopts the time-varying parameter vector autoregressive model(TVP-VAR),which is a nonlinear time-varying analysis model completely,all coefficients and covariance are changing over time,it can accurately capture the dynamic effect of exchange rate volatility on import and export trade.The following three aspects are discussed in this paper:(1)Mainly summarizing theories of exchange rate and international trade and the related domestic and foreign research about the impact of exchange rate volatility on the import and export trade,understanding the principle of exchange rate volatility on import and export trade;(2)Based on RMB real effective exchange rate,this paper builds ARCH type models measure RMB exchange rate volatility,and analysises the characteristic of RMB exchange rate fluctuations;(3)Use the BDS test to determine whether a model has nonlinear characteristics or not.Then,using the TVP-VAR model in September 2005 to December 2015,during the monthly data for empirical research,to analyze dynamic relationship of these variables.And then put forward reasonable suggestions to the reform of exchange rate system and the healthy development of import and export.Research results show that: first,RMB real effective exchange rate fluctuations,foreign direct investment and import / export has obvious nonlinear characteristics,which means the traditional constant parameter model estimation results are not suitable;Second,the effect of RMB real effective exchange rate volatility on China's import and export trade has asymmetry in the short term,showing positive impact on China's import trade while negative impact on China's import trade,and in the long term the effect of RMB real effective exchange rate volatility on both China's import and export trade is negative;Third,in the short term in different period,the impact of RMB real effective exchange rate volatility on import and export trade is different.Fourth,RMB real effective exchange rate volatility can also affect the import and export trade through the impact of foreign direct investment,the RMB real effective exchange rate volatility and foreign direct investment shows a negative relationship,the positive relationship between foreign direct investment and import and export trade are delayed.In view of the above conclusions,the paper put forward the following suggestions: keep the RMB exchange rate basically stable;accelerate the development of the foreign exchange market,enrich foreign exchange products;continue to promote the development of foreign currency exchange;encourage import and export manufacturers have different reasonable use of financial hedging tools;actively cultivate and introduce financial professionals;consolidate the foundation of economic development,grasp the reform time;communication,and actively guide market expectations;continue to actively promote the introduction of foreign direct investment.The innovation of this article is study the effect of exchange rate volatility on import and export trade from the perspective of nonlinear,thus making the conclusion more in line with the actual,and offer greater reference value.