Financial Development And Real Exchange Rate:International Experience And Chinese Fact

As an important indicator of measuring economic relations between the two countries,real exchange rate play an important role in the allocation of resources,have a wide influence on the economic development of a country,and is also one of the important variables affecting a country's international competitiveness.So the real exchange rate is of great importance in the study of the contemporary international financial position,is an important task of academic research.Financial development,as a hot topic in academic circles,has been widely concerned.There have been numerous studies that show that financial development has a very important influence on a country's macroeconomic,especially,there are many studies on the relationship between financial development and economic growth.However,scholars pay little attention to the impact of financial development on the real exchange rate.In this paper,theoretical part combed four transmission paths that the financial development affects the real exchange rate.First one is that the financial development can make productivity rising by improving the resources allocation efficiency,by increasing R&D and human capital investment,so financial development have a positive impact on the real exchange rate through productivity path;Second,the financial development can promote material capital accumulation through raising the savings rate,improving the efficiency of conversion from saving to investment,and boosting the marginal productivity of capital,so financial development have a positive impact on the real exchange rate through the material capital accumulation mechanism.In addition,financial development can reduce the financing cost of enterprises by influencing the financing scale and financing efficiency,so financial development can make a negative impact on the real exchange rate through the path of financing cost.Finally,financial development can promote residents'consumption by raising residents' income,alleviating the liquidity constraints and reducing precautionary savings,so financial development can promote the real exchange rate appreciation through the consumption mechanism.In the empirical side,this paper firstly adopts samples from 175 countries or regions in the world from 1994 to 2015,and studies the influence of financial development on real effective exchange rate from the perspective of the whole world.Then,this paper use panel data from 174 countries in the world in 1994-2015 to examine the impact of financial development on the RMB real exchange rate.The empirical results show that the comprehensive impact of financial development on the real effective exchange rate is significantly positive,namely,the improvement of financial development will promote the appreciation of the real exchange rate.In addition,when the samples was divided into higher income countries and lower-middle income,the study found that different income level of the country's level of financial development have a different impact on the real exchange rate.In low income countries,financial development has a greater impact on the real exchange rate,but in the high-income countries,the effect of financial development on the real exchange rate is relatively limited.In general,the empirical test of this paper verifies the theory that financial development can have a significant impact on real exchange rate.Based on the impact of the financial development on the real exchange rate in theoretical research and empirical analysis conclusion,this paper puts forward the following suggestions.The first is to attach great importance to impact of financial development on the real exchange rate.Secondly,China should further deepen financial reform,should promote financial development and put its' merits into full use.Thirdly,finance should be coordinated with the real economy so that the financial sector and the real economy to form a virtuous circle.