A Study On Correlation Of Chinese Return On Capital And RMB Exchange Rate

The exchange rate of a country is expected to be closely related to the country's return on capital.Since the reform and opening up,China has a high level of capital returns around the world,a large influx of global capital led to the rapid development of China's economy,the RMB exchange rate has repeatedly appreciated.But from 2014,the RMB exchange rate hovering at 1 US dollar against the 6.1 yuan,to the recent exchange rate declining,the continued depreciation of the RMB once caused people to panic.Looking back in recent years,the topic of devaluation of the RMB is endless.Although the current advantage of China's foreign trade surplus will continue to boost the trend of the RMB exchange rate,but if analyze it deeply,now China is already in a trend of continued capital decline rate in the overall declining economic background,with more companies choose to invest prudently,with the expect of the RMB depreciation,the devaluation of the RMB exchange rate pressure may have been sustained for a long time.The change in the RMB exchange rate reflects the dual effect of China's economic and financial levels.At present,the domestic research on the current situation of RMB exchange rate devaluation is concentrated in the financial aspects,such as currency,FDI,international trade and so on.In this paper,the capital return rate as the starting point,focusing on the long-term changes in the RMB exchange rate,from the perspective of China's economic fundamentals,putting forward a new explanation:the change in China's capital return rate triggered the depreciation of the RMB exchange rate,the two exists significant correlation.Its mechanism is:with the weakening of the advantages of China's capital returns,international capital flows out,leading to the depreciation of the RMB exchange rate.In the theory of equilibrium exchange rate,the rate of return on capital as an important measure of the overall operation of a country's economy,to a certain extent,which can reflect the level of a country's exchange rate,which also meet the purchasing power parity and the Bala-Samuelson theory.Therefore,this paper from the perspective of the rate of return on capital exchange rate changes in the RMB has a certain theoretical value.The research content of this paper is divided into five parts.First of all,this paper introduces the background and significance of the research,explains the theoretical and practical value of the topic;from the currency exchange rate determinants,capital returns and currency exchange rate correlation between the two aspects of combing domestic and foreign research progress and the formation of literature.This paper expounds the research ideas and framework,and discusses the innovation and the insufficiency of the whole research method and the topic selection.Secondly,this paper discusses the research ideas and the framework of the research on the concept of capital return.This paper explores the theoretical relationship between the rate of return on capital and the exchange rate of RMB,and makes a descriptive statistical analysis of the rate of return on capital and the exchange rate of RMB.The paper analyzes the relationship between the return on capital and RMB exchange rate.To build the measurement model of capital return in China and the United States and obtain the capital return rate of China and the United States between 1978 and 2016,to compare the RMB exchange rate data and find that the trend of China's capital return rate and RMB exchange rate is consistent;Through empirical research,from the perspective of mathematical analysis of capital,the relationship between the rate of return and the RMB exchange rate,through the exchange rate difference between China and the United States as the core interpretation of variables to the US interest rate difference,the growth of China's money supply,China's trade import and export balance growth rate and central bank intervention as a control variable,(VEC)model,the empirical results show that there is a significant positive relationship between the rate of return on capital and the exchange rate of RMB,and the gap between China and the US capital return rate.Finally,after summarizing the results of the previous theory and the empirical analysis,this paper puts forward the rational optimization of the industrial layout,the effective implementation of the rational allocation of resources,the comprehensive expansion of direct financing channels,to stimulate the vitality of the workforce again and solidly promote the internationalization of RMB and other five policy recommendations.This paper is characterized by the following two aspects:First,select the index of capital return as the core variable,from the perspective of China's macroeconomic fundamentals of the current trend of the RMB exchange rate depreciation trend;the second is to build the capital rate of return and the RMB exchange rate VAR And VEC model,from the empirical point of view to prove the return on capital and the RMB exchange rate correlation.The shortcomings of this paper are mainly due to the availability of data and the need to match the time frequency of the core variables.The time span of the data selection is limited,the frequency is low,the sample size is small,and the selection of other control variables is not perfect.