Macroeconomic Shocks And Real Exchange Rate Dynamics

Following the Frisch-Slutsky tradition,the moderN macroeconomic business cycle theory is a study of the shock-transmission mechanism.My paper deals with macro shocks and real exchange rate dynamics within the framework of DSGE-SVAR.My paper attempts to answer the following four questions:First,how to identify different macroeconomic shocks under SVAR framework?Second,what structural shocks exert crucial impact on the volatility of the RMB exchange rate?Third,how do fiscal shocks affect the dynamics of the RMB exchange rate,and what are their transmission mechanism?Fourth,how to explain the contradiction between the theoretical and empirical studies in the reaction of the real exchange rate to the technical shock and the contribution of the technical shock to the real exchange rate fluctuation in the research of the developed countries(the US)?Therefore,the main part of my paper consists of the following four chapters:chapter 2 combs the first question and introduce static and dynamic methods to identify SVAR.Chapter 3 studies the source of the RMB real exchange rate volatility,trying to answer the second question.In this chapter,I construct a DSGE model that defines the following five structural shocks:supply,domestic demand,monetary policy,foreign demand and risk premium shock.Then I identify these five shocks through SVAR.The results of vari-ance decomposition show that supply side shocks are not the main factor determining the fluctuation of RMB real exchange rate.The demand side shocks represented by govern-ment spending shock and foreign demand shock are the main driving factor of the RMB exchange rate volatility.Since the demand side shocks are the source of RMB real exchange rate volatility,and recently empirical study on how government spending shock affects real exchange rate cast a puzzle against traditional theory,chapter 4 studies the transmission mechanism of fiscal shocks on the RMB real exchange rate,trying to answer the third question.I extend the DSGE model constructed in Chapter 3,which makes it possible to distinguish between government consumption and government investment shock.And in the empirical part I use SVAR to identify government consumption shocks and government investment shocks separately.I find that both expansive government consumption and investment shocks cause RMB real exchange rate to appreciate,whose predict is consistent with the prediction of the conventional Mundell-Fleming model.To explain the forth question,I try to identify TFP news-noisy shock and discuss the dyn-amic effect of this two shocks on US real exchange rate.As nonfundamentalness problem is unavoidable in news-noisy setting,I give up the static identification method and turn to dynamic identification method.My finding is that TFP news shock appreciate US real exchange rate,and TFP news shock has great explain power to the US real exchange rate fluctuation.