Research On The Influence Of Current Account And Financial Account On Exchange Rate Fluctuation

Since our country has leapt to the world's largest trading nation and The total amount of the economy exceeds that of Japan,Rank second in the world,fluctuations in the exchange rate of the RMB have not only affected the domestic economy,but have also had important influence on the world economy.In 2010,China re-adopted a floating exchange rate system that adjusted with reference to a basket of currencies,which marked the termination of the renminbi-dollar-linked system and greatly increased the flexibility of RMB external transactions.Not only that,China has continuously liberalized trading restrictions,approved domestic enterprises to use renminbi for overseas direct investment,and promoted the piloting of cross-border trade in RMB settlements nationwide.Such promotion has also contributed to the appreciation of the renminbi against the US dollar.However,by 2014,the RMB depreciated.This is not only due to the slowdown of China's economic growth,but also to the fluctuation of world economy.Emerging economies have generally devalued their currencies and have seen serious capital outflows.China is also unavoidably affected,resulting in the outflow of short-term capital,decreasing of th direct investment,and devaluation of the renminbi.The devaluation of the renminbi will cause an increase in the trade surplus,promote economic development,increase the confidence of the renminbi,and encourage the exchange rate of the renminbi to rise again.Therefore,the mutual influence between changes in the balance of payments and exchange rate fluctuations of the RMB has aroused widespread concern among scholars at home and abroad.This paper believes that exploring these issues is very important for effectively monitoring exchange rate fluctuations and preventing the resulting various financial risks.To this end,this article will explore how exchange rate changes are affected by current account and financial account in the balance of payments,and give corresponding conclusions and policy recommendations.This article's research background and significance,research contents and methods,and research innovation are the first part,elaborated in the introduction.The second part is the literature review at home and abroad.It reviews the literature on the correlation between exchange rate and interest rate and exchange rate and current account and financial account in the international balance of payments.It summarizes the research achievements and deficiencies of domestic and foreign scholars and lays the foundation for the follow-up study of this article.The third part is the model choice of China's current account,financial account and exchange rate relationship.The methods used include unit root test,Bai and Perron threshold models.The fourth part is the empirical research part.From January 2010 to September 2017,the monthly data of the exchange rate,interest rate,current account in the balance of payments,financial projects,goods trade and service trade in the current account,and the monthly data of direct investment and securities investment in financial projects are measured as samples,the interest rate is selected as the threshold variable.Through the construction of the threshold regression model of RMB current account,financial project and exchange rate,and the threshold regression model of service trade,goods trade,direct investment,securities investment and exchange rate,the influence mechanism of the exchange rate changes in the balance of payments is explored.The results of this study show that in the sample range from January 2010 to September 2017,the influence of the current account and financial project on the exchange rate changes and the effect of the goods trade and service trade in the current account,the direct investment in the financial project and the stock investment on the exchange rate change will vary with the interest rate,but it is not a simple linear relationship.Through threshold model test,this paper screened the mechanism of influencing factors of exchange rate fluctuation under different interest rates.When the interest rate is in a lower range,that is,the central bank takes a loose monetary policy,there is a negative correlation between the current account,the financial project,the direct investment and the exchange rate,and there is a positive correlation between the service trade and the exchange rate.In this interest rate range,the changes in the above items are not conducive to the stability of the exchange rate,while the goods trade and the evidence are proved.There is no significant relationship between the voucher investment and the exchange rate,and it has a weak influence on the exchange rate change.When the interest rate is in a higher range,the central bank has a negative correlation between the goods trade,service trade,securities investment,direct investment and exchange rate when the central bank adopts the tight monetary policy,and there is a positive correlation between the financial items and the exchange rate,which is a positive correlation between the exchange rate and the exchange rate.In the interval,the above items are not conducive to the stability of the exchange rate,while the impact of the current account on the exchange rate fluctuation is weakened,and there is no significant correlation between them.