Rmb Effective Exchange Rate And Macroeconomic Internal And External Balance

As a core variable in open economy, exchange rate has direct and close relations not only with the current accounts and capital accounts, but also with other macroeconomic variables. The fluctuation of exchange rate has great influences on the international trade; international capital flow; domestic general price level; and employment etc, and then relate to the realization of inner and outer equilibrium of macro economy. With the accelerated development of the trend of economic globalization and the continuously rising degree of China's openness to the outside world, being an important outward economic variable, exchange rate of RMB are becoming more and more important for China's macroeconomic inner and outer equilibrium. Consequently, to measure the impact of exchange rate of RMB on the macroeconomic inner and outer equilibrium impersonally and truthfully is related to an accurate and reasonable evaluation of China's exchange rate polices carried in the past decades, and can provide a decision-making basis for the future reform of China's exchange rate regime.Owing to the diversities of the international commercial intercourse, bilateral exchange rate is not enough to describe the fluctuation of the value of one currency to the outside world accurately. As a weighted average of bilateral exchange rates between one country's currency and its main trading partners'currencies, effective exchange rates can evaluate the degree of fluctuation of its value to the outside world and its position in international economic intercourse. In this dissertation,we will adopt the methodology of modern econometrics to do a systematic and in-depth study theoretically and empirically on the influence of RMB effective exchange rates on the inner and outer equilibrium of China's macro economy based on theories of exchange rates, especially theories of modern equilibrium exchange rates.Chapter 1 measures quarterly data of RMB nominal and real effective exchange rates from 1994 to 2005. To measure the effective exchange rates of one currency accurately is the basic work in both theoretical and empirical studies related to exchange rates. In this chapter, we adopt a bilateral trade model and choice the United States, Japan, Hong Kong, Taiwan, Korea, Germany, France, England, Singapore, Thailand, Canada, Holland, Italy, Australia, Indonesia and Malaysia as China's main trading partners to measure the nominal and real effective exchange rates for RMB from the first quarter of 1994 to the last quarter of 2005, according to the bilateral yearly trade volume. Then we measure the variability of RMB real effective exchange rates based on GARCH model, and analyze reasons for fluctuation of the real effective exchange rates for RMB.Chapter 2 studies the equilibrium real exchange rates of RMB and estimate the degree of misalignment of the RMB real exchange rates. Being an important variable in the open economy, real exchange rate is very important to the realization of inner and outer equilibrium of macro economy. Many theoretical and empirical studies have indicated that the real exchange rate of a currency should be kept at the reasonable level, because continuous misalignment of real exchange rate will do great harm to the inner and outer equilibrium of macro economy and the healthy development of economy. In this chapter, we adopt quarterly data from 1994 to 2005 to estimate the equilibrium real exchange rates of RMB and analyze the misalignment of the RMB real exchange rates using an econometric model based on the theory of behavior equilibrium exchange rates. In this model, we take the real effective exchange rates of RMB as dependant variable, and the trade condition, relative price ratio of non-tradable and tradable goods, net foreign assets, and degree of openness as independent variables.According to the definition of inner and outer equilibrium of macro economy given by Williamson and other economists, the following three chapters deal with the influence of RMB exchange rates on China's inner and outer equilibrium of macro economy in three difference aspects, that is, the general price level, employment and balance of payments.Chapter 3 studies the influence of RMB nominal effective exchange rates on China's general price level. Price stability is an important side of the inner equilibrium of macro economy, and a major desired goal of macroeconomic policies in all countries. The general price level of a country has a very strong relation to its currency value(namely exchange rate).A depreciation(appreciation) of domestic currency will cause an increase(decrease) of domestic currency price of import consumer goods or the semi finished product, then the general price level. It's generally believed that exchange rate fluctuation will first influence the import price level, then the domestic producer price, finally the consumer price. In this chapter, we will have a theoretical analysis on the relationship beteen exchange rate and domestic general price level based on the theories of exchange rates pass-through. Then we will do an empirical research on the impacts of RMB nominal effective exchange rates on China's import price level, producer price level, and consumer price level, using quarterly data from 1994 to 2005.Chapter 4 is focused on the impacts of the level, variability and misalignment of RMB real effective exchange rates on China's employment. Full employment is also an important side of the inner equilibrium of macro economy, and it's one of a major desired goal which the macroeconomic policymakers want to pursue in the modern market economy. China's employment problem has become a focus which the government authorities and scholars both pay much attention to because of the increasing pressure of employment in recent years. In the open economy, the adjustment of exchange rate will change the competitive advantages of domestic products against foreign products, then the relative scale of native and foreign import and export, finally lead to relocation of native and foreign labor force and fluctuation of their total employment quantity. Great deals of theoretical and empirical studies have indicated that real depreciation of a currency is advantageous to expand domestic employment quantity. Contrarily, real appreciation will do harm to domestic employment. In the meantime, the variability of exchange rate is also disadvantageous to employment. In this chapter, we have an empirical study on the influences of the level, variability and misalignment of RMB real effective exchange rates on China's domestic employment. To overcome the restriction of data acquirability and sample capacity, we use both time series data and panel data to examine the effects of exchange rate on employment.Chapter 5 studies the influences of the level, variability and misalignment of RMB real effective exchange rates on China's balance of payments. For an open economy, to keep the balance of payments being in general equilibrium state is not only a basic need for the outer equilibrium of the macro economy, but also an important target which the country's macroeconomic policymakers want to pursue. As a core variable in open economy, the fluctuation of exchange rate has direct impacts on the international trade and capital flow, then the balance of payments. Because the trade balance and inflow of foreign direct investments are the most important factors in the structure of China's balance of payments, we first review the related theoretical and empirical literatures, and then have an empirical study on the influences of the level, variability and misalignment of RMB real effective exchange rates on China's trade balance and inflow of foreign direct investments.Chapter 6 first summarizes the full dissertation, then points out the shortage of this research and gives an outlook for further research.