Research On US Trade Policy Uncertainty Influencing On RMB Exchange Rate Fluctuation

Recently,China has been actively advancing the reform of RMB exchange rate formation mechanism,which leads to the gradual deepening of the market-oriented trend of RMB exchange rate.With the continuous expansion of RMB exchange rate’s fluctuation elasticity,the influencing factors are also increasingly diversified and complicated.Since2018,the U.S.has continuously upgraded trade friction with China,during which the fluctuation of RMB exchange rate has increased significantly.In June 2019,Yi Gang,the president of the People’s Bank of China,pointed out that "the trade war may bring temporary devaluation pressure to the RMB,but after the war RMB will return to stability".Scholars also found that the upgrading of trade friction between China and the U.S.aggravated RMB exchange rate fluctuation,but what scholars ignored is the impact of US trade policy uncertainty caused by trade frictions on RMB exchange rate fluctuation.Therefore,this paper attempts to answer the following question: does US trade policy uncertainty aggravate RMB exchange rate fluctuation?Considering EEMD can extract different spectrum components adaptively,this paper decomposes RMB exchange rate into high-frequency component reflecting the short-term non-equilibrium of the foreign exchange market,low-frequency component representing major events and trend term representing the long term trend.Then,the high-frequency component of RMB exchange rate is used to represent the fluctuation of RMB exchange rate,and the relationship between US trade policy uncertainty and RMB exchange rate fluctuation is emphatically analyzed.It is found that the trend of RMB exchange rate fluctuation is basically consistent with the trend of US trade policy uncertainty,that is,when US trade policy uncertainty increases,RMB exchange rate fluctuation will also increase significantly.Therefore,it can be concluded that US trade policy uncertainty is the interference cause of RMB exchange rate fluctuation.In the empirical analysis,this paper establishes and analyzes two VAR model.One model’s dependent variable is the high-frequency component of RMB exchange rate,whilethe independent variables are US trade policy uncertainty,short-term cross-border capital flows,import and export trade,and psychological expectation.The other model’s dependent variable is the trend term of RMB exchange rate,and the independent variables are the same as the first model.The empirical results are as follows:(1)the four independent variables are Granger causality of the high-frequency component of RMB exchange rate;(2)the high-frequency component of RMB exchange rate shows positive volatility after a unit of positive impact of US trade policy uncertainty;(3)the interpretation of US trade policy uncertainty to the high-frequency component of RMB exchange rate is as high as 19%;(4)the four independent variables are not Granger causality of the trend term of RMB exchange rate.To sum up,US trade policy uncertainty is the influencing factor of the high-frequency component of RMB exchange rate,and these two variables are positively correlated.However,US trade policy uncertainty can’t affect the trend term of RMB exchange rate.