Real Exchange Rate And Economic Growth

In the past decade or so,the rapid economic growth of East Asian countries such as China has been accompanied by the accumulation of foreign exchange reserves,the surge in exports,and the government's continued intervention in the foreign exchange market.These events are closely related to the lower real exchange rate,which show that the real exchange rate is an important variable in economic growth.The traditional view is that the real exchange rate depreciation is expansive.However,many empirical studies have shown that the depreciation has a tightening effect.The debate on this issue is the focus of economists,but it has not reached a consistent conclusion.This paper uses macroeconomic theory to construct a theoretical analysis framework of real exchange rate's effect on economic growth from the perspective of supply and demand.On this basis,using the unbalanced panel data of 18 OECD countries from 1994 to 2016,we empirically test the dynamic relationship between real exchange rate and economic growth,and examine the differences under different exchange rate regimes.Meanwhile,we reveals the puzzle of whether the depreciation of the real exchange rate of the RMB has promoted China's economic growth by using China's macroeconomic data from 1982 to 2017.The empirical results of OECD countries show that:(1)The real exchange rate has a significant positive impact on economic growth.The real exchange rate depreciation is conducive to output growth under certain conditions,but output growth has little effect on the real exchange rate;(2)For countries with fixed exchange rate system,the impact of real exchange rate depreciation on economic growth is positive,but for floating exchange rate countries,the relationship between the two is not significant;(3)The relationship between real exchange rates and economic growth is closely related to inflation variables.The empirical results of China show that:(1)The depreciation of the real exchange rate of the RMB is conducive to output growth under certain conditions;(2)There is a certain false correlation between the real exchange rate and economic growth;(3)The short-term contraction effect of devaluation on the price level is real,but it will reverse afterwards;(4)After introducing the time dummy variable,it is found that the exchange rate policy reform of 2005 has no significant effect on the relationship between real exchange rate and economic growth.Based on the above research conclusions,this paper gives a reasonable explanation for the particularity of China's real exchange rate and economic growth,and proposes policy recommendations on real exchange rates:Maintain a stable and competitive real exchange rate and strengthen the complementarity of exchange rate policies with other policies,but maintaining a stable and competitive real exchange rate will generate costs,so an exit strategy is needed to avoid falling into a failed strategy.