Real Exchange Rate Analysis Of The Impact Of China's International Payments

The appreciation of nominal exchange rate doesn't give China's exports and trade balance a serious impact as many scholars expected although RMB has been inching upward since the reform of China's exchange rate system in 2005. The oversized trade surplus has not been reduced effectively. This urges us to study the impact of exchange rate changes on China's balance of payments based on the perspective of real exchange rate, which will help us to learn how to regulate balance of payments effectively, thus promoting China's sustained and rapid economic growth.This paper has studied the short-term and long-term influence of real exchange rate of RMB on China's trade balance using the methods including the Cointegration Analysis, the Vector Error Correct Model (VECM), the Pulse Response Analysis and the Variance Decomposition and so on. It comes to the conclusion that, the long-term cointegration relationship between real exchange rate of RMB and China's trade balance is founded; Marshall-Lerner condition can not hold, that is, China's trade balance can't be regulated effectively through real exchange rate of RMB now; the "J" curve effect displays extremely obviously on China's bilateral trade balance to America, the period lagged is about a year, the "J" curve e ffect does not exist on China's overall trade balance; the real exchange rate of RMB has much smaller influence on China's trade balance than the actual GDP .This paper has analyzed the role of real exchange rate of RMB in the competition for FDI with the use of the mixed cross-section model and the fixed effects model. It comes to the conclusion that, the real appreciation of RMB will reduce China's attraction for FDI; the fixed non-observation effect such as the similar culture, similarity in ethnic, political factors, economic policy, latent risk and so on has the important influence on FDI inflows; the export-oriented FDI has been dominant in China.This paper has analyzed the influence of real exchange rate of RMB on the net errors and omissions in China's balance of payments based on the perspective of real exchange rate misalignments. After withdrawing the long-term equilibrium of the basic economic factors using the Hodrick-Prescott filter, we estimate both the equilibrium real exchange rate and the degree of real exchange-rate misalignment of RMB through putting it into cointegration equation based on the ERER model. It is founded that China's net errors and omissions account is increased when the real exchange rate of RMB is undervalued, otherwise reduced.Based on the above analysis, this paper has analyzed comprehensively current situation and future outlook for the influence of real exchange rate of RMB on China's balance of payments. It comes to the conclusion that, although China's balance of payments can't be regulated effectively through real exchange rate of RMB now, it will be regulated more effectively and the "double surplus" situation of current account and capital account will be reversed in future.