The Effect Of RMB Real Effective Exchange Rate Changes On Income Distribution In Our Country

Exchange rate changing may cause the flow and allocation of resources in a country, resulting in altering income-distribution structure, and it may have an impact on the income distribution of a country through foreign trade, FDI and other factors.Our government makes further improvement on market-oriented exchange rate mechanism and extends the floating range of the RMB against the US dollar. The characteristic of exchange rate fluctuations is increasingly obvious. Market-oriented exchange rate will inevitably increases the volatility of exchange rate changes in the future, and exchange rate changes by affecting import and export trade, FDI and other factors has an effect on income distribution in a country. Problem of income distribution inequality is still very prominent. However, the RMB exchange rate fluctuations on income distribution will help make up for the current RMB exchange rate system reform research to help clear the important role played by the exchange rate policy on income distribution and the exchange rate policy cooperates with other macroeconomic policies to improve our income distribution inequality. Therefore, a research on relationship between exchange rate and income distribution is very important.This paper that studies the effect of exchange rate changes on income distribution is divided into four chapters. Chapter 1 is an introduction, mainly introducing the background and significance of research, literature review of exchange rate changes on income distribution. And it has a brief explanation of the research method,content of the article, innovations and shortcomings of the article. Chapter 2 describes the main theoretical models of exchange rate changes on income distribution. This chapter is divided into two sections, the first section introduces the main mechanism of RMB exchange rate changes on income distribution; the second section focuses on the theoretical model of Tropeano & Michetti (2008), and adds trade factor into the model to analyze the impact of exchange rate fluctuations on income distribution. Empirical modeling portion in the next chapter is based on theoretical foundation in Chapter 2. Chapter 3 is mainly to examine the relationship between RMB real effective exchange rate and income distribution on empirical perspective. Firstly, analyze the trend of RBM real effective exchange rate, the wage share and the profit share, then we summarize the relationship between RMB exchange rate and the profit share, the wage share; secondly, using annual panel data from 2003 to 2014, this paper establishes the profit share model, the wage share model, the profit share modified model and the wage share modified model. Use the LM test, Wald test to examine heteroscedasticity and autocorrelation between groups. According to the results of LM test, Wald test, empirical analysis uses a comprehensive measurement methods FGLS to obtain the relationship between interpreted variables and explanatory variables. Finally we seek empirical conclusions. Chapter 4 explains the conclusions and policy recommendations, this chapter is a summary of the full text, and on this basis, we propose some policy recommendations.Empirical results show that the appreciation of the RMB exchange rate increases the share of profits and reduces the share of wages, so it worsens income distribution inequality; on the opposite, the RMB exchange rate devaluation reduces the share of profits and raises the level of the wage share, so it improves income distribution inequality. In this paper, we suggest to maintain the stability of the exchange rate, to avoid wide fluctuations in exchange rates, to change the structure of foreign trade, to introduce foreign direct investment reasonably, to reduce the degree of monopoly industries and to introduce high-tech so that we could reduce the gap between capital and labor income and improve the status of income distribution inequalityInnovation of this paper is mainly reflected in:Firstly, The paper gives a detailed record of RMB exchange rate on income distribution mechanism.Trade factor is brought into Tropeano & Michetti (2008) open economy macroeconomic model and taking into account the industry’s monopoly level, technical level will affect a country’s level of wage income and profits, so that these factors will also be included in the model equations. Most domestic scholars focus on the theoretical analysis, their papers lack empirical test, however this article uses qualitative and quantitative methods and it not only includes theoretical research but also measure income distribution by establishing empirical models to test the relationship between income distribution and exchange rate. Then we draw the relevant conclusions. Furthermore, few foreign scholars will discuss industry factors into the model, this paper based on analysis of industry data will help to complement and improve predecessors" macro-analysis, this is the empirical innovation of this paper.The shortcomings in this paper:The empirical analysis in this article uses annual data, compared with the monthly data and quarterly data, the capacity of the sample seems to be worse, it may affect the conclusions convincing. It needs to be improved. Besides, the RMB real effective exchange rate in the article comes from the website. Failing to collect and calculate the real effective exchange rate is also to be improved in this paper.