Impact Of Infrastructure On The Real Effective Exchange Rate

As an important member of the financial markets,exchange rate has high-profile.Its fluctuations have a significant impact on the real economy,financial markets,investment and exports.According to the existing exchange rate determination mechanism,factors that influence changes the exchange rate are very rich.But few studies related to the exchange rate mention the infrastructure.Based on the IMF formula,we calculate the provincial level effective exchange rate and consider the trend of real effective exchange rate at the microscopic level.Then with provincial panel data,we analyze impacts of infrastructure on the value of real effective exchange rate through theoretical and empirical models.Finally we draw conclusions and make recommendations.The core contents of this paper are two parts:theoretical part and empirical part.In the theoretical part,firstly we build a brief macro-model and then analyze the impact mechanisms.There are two types of transmission mechanisms:one is that the infrastructure affects the real effective exchange rate by influencing productivity;the other is that the infrastructure affects the real effective exchange rate by promoting economic development.The part of empirical analysis is to verify conclusions of the theoretical analysis.The empirical analysis shows:(1)Increase of infrastructure,whether the total infrastructure investment or measure of stock,has significant depreciated effect on the real effective exchange rate.(2)In the two transmission mechanisms,the negative mediating effect of the relative labor productivity is significant,and the positive effect of economic development is also significant.(3)The other factors which are considered as important factors show no significant effect on the real effective exchange rate.Trade openness and foreign direct investment have effect on the real effective exchange rate,but they are not enough robust.In comparison,the infrastructure can be used as a robust variable.(4)The nonlinear model shows that the nonlinear relationship between the infrastructure and the real effective exchange rate is not obvious.(5)This relationship has a slight different because "the exchange rate reform",but it did not change the overall negative impact.And regional factors also have a similar effect.