The Impact Of China’s Labor Supply On The Equilibrium Exchange Rate Of RMB

On the one hand,as the exchange price of the two currencies,the exchange rate is the regulator of China’s connection with the world,affecting almost all internal and external economic indicators;Exchange rate imbalance will have a significant impact on the domestic economy and break a country’s economic balance,which is related to the effective allocation of resources and the stable and orderly development of social economy.The pursuit of exchange rate equilibrium is also a reference for a government to formulate correct exchange rate policies and regulate the exchange rate level.On the other hand,China is in an important stage of the change of factor endowment structure,which is highlighted by the downward trend of the number of working age population and labor force population.As an important factor supporting economic development,the change of labor is very important for the promotion of economic growth and the adjustment of economic industrial structure.The change trend of labor supply will undoubtedly have an important impact on China’s economic growth trend in the future.Therefore,it is of great significance to study the impact of China’s labor supply on the RMB equilibrium exchange rate.While briefly describing the general equilibrium theory and input-output table,this paper combs the literature related to the equilibrium exchange rate theory and the impact of labor supply on the exchange rate,so as to provide a theoretical basis for this research.In addition,it expounds the changes of China’s labor supply,summarizes and combs the existing prediction results of labor supply,and establishes the overall context of China’s labor supply research.Then,using the general equilibrium theory and the concept of input-output table,this paper constructs the two-country general equilibrium model for empirical research,and uses domestic and foreign data to compile the two-country input-output table including 4 departments and 7 subjects.Foreign countries refer to other economies except China.Based on the two-country general equilibrium model,the real equilibrium exchange rate index is calculated with the help of R,so as to analyze the impact of China’s labor supply on the RMB equilibrium exchange rate.Finally,relevant suggestions are given according to the conclusions.The theoretical and empirical results of this paper prove that when the substitution elasticity of domestic and foreign products remains unchanged,the increase of labor supply makes the real equilibrium exchange rate index rise,indicating that the increase of labor supply makes the real equilibrium exchange rate deviate from the equilibrium level and devalue the RMB;With the gradual increase of labor supply,the trend of RMB devaluation has gradually slowed down.For the substitution elasticity of domestic products and imported foreign products,the scope is mainly determined by referring to the value of substitution elasticity of domestic and foreign products in the existing relevant literature.The results show that when the domestic and foreign product substitution elasticity increases,the real equilibrium exchange rate index increases with the increase of China’s labor supply,and the impact of domestic and foreign product substitution elasticity on the real equilibrium exchange rate index is reflected in the change range,that is,the greater the substitution elasticity,the smaller the change range of labor supply on the real equilibrium exchange rate index.