An Empirical Investigation On Foreign And Domestic Output Gap Factors To China’s Currency Level And Countermeasures Analysis

The central idea of the paper is the currency issues in china. The article is divided into two parts to elaborate this question, which is called "one centre, two tasks". During the first part, I select the output gap variable as the entry point, which is the macroeconomic variable. In the model of the paper, I introduce the domestic and foreign output gap. The result demonstrates that international and domestic output gap has a significant impact on the level of china’s inflation and deflation, and the impact of the international output gap is the greatest. So, when we consider the currency issues in china, we must put the foreign and domestic output gap into consideration, in the meanwhile, we also analyze the specific issue according to the different situation. For example, japan is our largest trade deficit country and America is our main surplus country, they just introduce diametrically opposite results to china’s currency level, which are clarified in the article. During the second part, I point out the solution against the currency issue. There is a branch centre in this part, which is adjusting the industrial and trade structures. Before that, I elaborate the delivery channels of output gap at home and abroad. On the basis of that, I propose the effective measures. For example, when there is positive domestic output gap and negative foreign output gap, then, we should take the measures such as negative currency policy, negative fiscal policy, adjusting the trade and industrial structure and so on. Until now, I complete the discussion of china’s currency issue, which has great theoretical and practical significance, especially to the government department formulating policy.Through the above analysis, I draw several conclusions as follows:firstly, the currency issue is influenced by domestic and foreign output gap. And japan, the greatest deficit country to china, occupies the dominant position, and America, the main surplus country to china, stands the second position, and the last position is domestic output gap. So, to intend to solve currency issue at home, we must consider the domestic and abroad output gap together. Besides, in order to explain the phenomenon that negative output gap in America will lead to high CPI level in china, I introduce the factor of international commodity price index to model, and the result demonstrates that this factor impact domestic currency level. The reason can be explained as follows:when America economic situation is bad, government will adopt loosen monetary policy and issue a great number of currency. This movement can lead to excessive liquidity of money in the world. And the international commodity price must be higher with the excessive dollar. As the main import country in commodity, our currency price level will be higher too. So the commodity factor explains the phenomenon mentioned above indirectly. Lastly, in the part of policy chapter, I also point out a branch central idea, which is adjusting industrial and trade structure in china with combination of fiscal、 monetary、income and exchange rate policy and so on.The greatest innovation of the paper is the entry point:output gap. There are two great parts to elaborate domestic currency issue by the method of empirical study and theoretical analysis. It provides our government with totally new perspective and policy evidence. In other aspect, I collect data used in this paper from IMF website. The output gap of japan and America can be got from that website directly, but domestic output gap can’t be got directly, so, I calculate domestic output gap by nominal GDP and the growth rate of real GDP, which can be observed in the IMF website.The framework of the article is as follows. The first chapter is the introduction part, it describes the background、purpose、significance、innovation and deficiency of the paper, in addition, it also summaries foreign and domestic literature. In a word, it leads to the theme of the paper. The second chapter mainly clarifies the source of data and output gap calculation. The third chapter is the empirical part. Firstly, it deduces the Phillips curve, and then determines our country’s Phillips curve by granger method. On the basis of second chapter’s data, the model is in the process of empirical study, after that, I analyze the result and explore the reasons. The fourth chapter proposes countermeasures against the currency question. Firstly, it introduces the detailed delivery channels at home and abroad. Then it puts out solutions against each case. In addition to that, the paper also clarifies methods against international commodity price factor’s impact on our currency issue. The last chapter mainly concludes the framework and results of the paper.