The Expansion And Empirical Study Of The Decision - Making Theory Of Balassa - Samuelson 's Exchange Rate

After repeated reform of the RMB exchange rate regime, China implemented the new regime to market demand with reference to a basket of currencies, a managed floating exchange rate system from July 21,2005. In recent years, the RMB exchange rate shows the trend of increasing appreciation. China’s rapid economic development, competitiveness and international status has been enhanced to bring the continuous appreciation of the RMB.The theory of exchange rate determination analysis that the exchange rate is decided and affected by which factors, it develops with the development of the economic situation. There are some theories, including international lending theory, theory of purchasing power parity, interest rate parity theory, international payments theory, asset markets theory. The most famous is the PPP. In the study of the real exchange rate, the Balassa-Samuelson effect is the first theory which based on purchasing power parity, explaining the deviation of the real exchange rate and purchasing power parity from the perspective of productivity, it established contact between the exchange rate and productivity, when the labor productivity increasing degree between trade goods and non-traded goods sector of foreign is relatively lower than the national, the national currency will have an appreciation. In recent years, China have a rapid economic growth, labor productivity has been upgraded, the RMB appreciation trend is unstoppable, Many scholars tried to use the Balassa-Samuelson effect of RMB to study the real exchange rate movements.PPP model considers the moving of the exchange rate only from the perspective of price, it can not fully consider the factors affecting the exchange rate, so we can introduce the macroeconomic variable GDP to analyze the changes of exchange rate. This paper starts from the division of tradable and non-tradable sector and productivity differences between two countries, combining with purchasing power parity theory to test whether the GDP impact on the real exchange rate. However the price of the purchasing power parity is determined by wage and productivity, thus we add wage to the BS effects to expand, and get the multiple linear equation of real exchange rate with the differences of wage and the difference in productivity of two sectors between the two countries. This paper takes manufacturing industry of the second industry as the tradable sector and the tertiary industry all as non-tradable sectors. Many literatures considered manufacturing has a higher trading degree, then divided it into tradable sector, and for the division of the non-tradable sector, many documents are not the same, the paper takes the third industry overall as non-tradable sector, because most of the tertiary industry don’t have a high trading degree, and the whole industry as the non-tradable sector encompasses a wider range. This paper selects the exchange rate in nominal terms, CPI data of 1995-2012 to calculate the real exchange rate and uses increased value and the number of employees of two sectors to calculate labor productivity. Because the assumption that the wage in a country is equalized, in order to simplify the calculation, we use national income to instead wage. In this paper we use eviews6.0 software to test the cointegration between these variables which affect the real exchange rate, and we get the multiple linear regression equation of real exchange rate. The final results show that the difference of GDP between the two countries has no impact on the real exchange rate; The difference of productivity in non-tradable sector has not significant linear relationship with real exchange rate; The difference of wage and the difference in productivity of tradable sector between two countries have cointegration relationship with real exchange rate, RMB exchange rate in line with the original BS effect and the expansion.