Research On The Impact Of Trade And Financial Openness On The Volatility Of Real Exchange Rate

Adhering to opening up to the outside world is China's basic national policy,and preventing systemic financial risks is an important bottom line for China.How to coordinate the relationship between the two issues is a key task.As one of the core variables in the open economy,the fluctuation of exchange rate is often an important precursor to systemic financial risk.Maintaining the relative stability of the exchange rate is of great significance for preventing systemic financial risks.Therefore,how to maintain exchange rate stability has important research significance in the process of opening up to the outside world.Based on the above background,this paper has carries on in-depth analysis and empirical test on the influencing mechanism of trade and financial opening on real exchange rate fluctuations.Firstly,this paper summaries the influencing factors of real exchange rate fluctuations,then constructs a theoretical model based on the redux model,analyzes the influencing mechanism of trade and financial opening on real exchange rate fluctuations,and uses panel data in 45 major countries from the period of 1981 to 2015 to make an empirical test on the influencing mechanism.Based on the preliminary results,this paper adopts the instrumental variable method to solve the endogenous problems between trade openness,financial openness and real exchange rate fluctuation,and further examine the impact of trade and financial openness structure,trade and financial vulnerability on real exchange rate fluctuations.The conclusions of this paper are as follows:(1)there is a negative correlation between trade openness and real exchange rate fluctuations,and there is a positive correlation between financial openness and real exchange rate fluctuations.(2)Manufacturing trade can reduce real exchange rate fluctuations,non-manufacturing trade will increase real exchange rate fluctuations;financial openness in the form of direct investment will help to reduce real exchange rate fluctuations,and securities investment and debt-based financial opening will increase real exchange rate fluctuations.(3)The more diverse a country's economic structure,the lower the debt-to-equity ratio,the more stable the country's real exchange rate;the more dispersed a country's economic structure,the stronger the ability of trade opening to reduce real exchange rate fluctuations,and the higher the debt-to-equity ratio of a country,the more severe the financial openness exacerbates real exchange rate fluctuation.Finally,on the basis of the research conclusions,this paper combines the impact of real exchange rate fluctuations on the real economy,and proposes policy recommendations to prevent real exchange rate fluctuations in the process of opening to the outside world.