Research On Impacts Of RMB Exchange Rate Fluctuation And Volatility On Investments

There are significant changes in the vibration path of the RMB exchange rate since the reform of its regime started in2005. By the end of2013, RMB nominal exchange rate and its real effective exchange rate have appreciated by nearly35%and39.7%respectively since the revaluation in2005. For import or export enterprises, RMB exchange rate fluctuation and volatility will affect the price of the importation and the final consumption goods directly which is called exchange rate pass-through effect.According to the analyses above, this paper focuses on electromechanical industry and its listed companies which is the most representative industry in the manufacturing to study the effect of exchange rate fluctuation and volatility on investment through the method of theoretical analysis combined with empirical detection. Firstly, this paper makes a summary of the relevant literatures domestic and abroad, and then conducts empirical research base on the theoretical model of the influence of exchange rate fluctuation and volatility on investment. The empirical research includes two parts:in chapter3, the influence of the exchange rate depreciation and appreciation on electrical industry are studied based on the theoretical model of the impact of exchange rate fluctuation on investment, with the method of co-integration and error correction model; in chapter4, the empirical model of the impact of exchange rate fluctuation and variability on investment is established, and then we use the data of74listed companies in electromechanical industry to do research on the influence of real RMB effective exchange rate fluctuation and variability on investment with the method of system GMM. Finally, the best variables for the model are selected to analyzed the relationship of the investment and the exchange rate again.Based on the total analysis, we can draw the following conclusions. To begin with, the influences of RMB exchange rates fluctuation on the investments of the whole electromechanical industry and its listed companies appear sharp negative. Secondly, the influences of the RMB real effective exchange rate volatility on the investments in listed companies of electromechanical industry show positive, Also the results shows that the influence of the exchange rate volatility on the investment will be weakened with the increasing mark-up which means greater market power. But the influence of the exchange rate volatility on investment is not statistically significant.