The Analysis Of Flexibility Effects And Inverted J-curve Effect On RMB Appreciation

The exchange rate is one of the important factors which have influence on the development of foreign trade about countries and regions, as a main kind of economic lever, the fluctuations of exchange rate will exert a great influence on one country's foreign trade, therefore, the fluctuations of exchange rate on import and export trade is a great subject of international economics at home and abroad.At present, RMB exchange rate of the dollar is appreciated consistently, but a large number of surpluses on current account and capital account, and the huge amount of foreign exchange reserve make our country face great RMB appreciation pressure. Then, under the continued appreciation of RMB, which kind and how heavily of the influence to our country's trade, and whether to ease the trade surplus are worth studying very much.There are a lot of studies about the effect of RMB devaluation on import and export trade, according to the traditional theory of the effect of exchange rate on trade. But under the condition of appreciation of RMB, the traditional theory of the effect of exchange rate on trade had been insufficient to explain the current economic problems. Therefore, on the basis of the review of the existed theory, launching the revised Marshall-Lerner Condition and setting up the import-export demand function, utilizing Co-integrated test and Vector error correction to conduct the research of flexibility effects; launching the J-curve Effect and setting up the trade balance model, utilizing Impulse responses to calculate the lags of RMB appreciation on trade. Finally, we come to two conclusions that RMB appreciation on the trade surplus is limited in the short term and the inverted J-curve Effect has existed, that RMB appreciation would reduce the trade balance in the long run. Meanwhile, considering the harmful effects that may be produced to the trade of our country, we put forward some concrete measures.