An Empirical Study On Effects Of Exchange Rate Volatility On China's Foreign Trade

Since the break down of the Bretton Woods system in 1973, exchange rates have been allowed to float almost freely and frequently in many countries, while the growth rate of international trade between these countries slowdowns. The effect of exchange rate fluctuations on trade, therefore, has been considered as an important theoretical and empirical issue. Internationally,most people believe that as Economics always assume that enterprises are risk-averse,and exchange rate volatility increases exchange rate risk, so that as exchange rate volatility increases, enterprises are reluctant to export. But some others argue that when exchange rate volatility inerease, enterprises would export more to make for their potential losses causing from exchange rate risk. So nowadays, research always take the form of empirical experience, focusing on different regions during different Periods, and can always get different results.In July 2005,RMB exchange rate system took an important change, the pegging to USA exchange rate system changed to the managed float exchange rate system referring to a basket of currencies and based on market supply and demand with a wider band of floating.Thus,it is necessary to analyze short-term fluctuation with the departure from long-term trend of RMB exchange rate.This paper reviews the related theories and documents of the effect of changes of rate on trade balance. And then, this paper collects the related datum from the year of 2001 to 2009, on the basis of analyzing the effect of changes of exchange rate on our country's trade balance, this paper mainly aims at assessing the effect of real effective exchange rate by means of combining qualitative methods and quantitative methods. Quantitative methods include ADF, Granger causality test, Cointegration analysis and VEC, analysis the effects of exchange rate volatility on China's foreign trade. Finally, this paper makes comments and gives some suggestion on the basis of above analysis. From now on, we should pay more attention to exchange rate.