BS Effect Expansion Based On Interdepartmental Labor Transfer Barriers

With the all-round progress of China's opening up,the international recognition of RMB keeps rising,and the exchange rate plays an important role in international trade as a leverage indicator of domestic and foreign economy.Papers about study of exchange rate are heavy,among which the Balassa-Samuelson Hypothesis explain the real exchange rate movements from the perspective of production which associated a country's real exchange rate changes with relative productivity changes between departments.This paper will follow the thinking venation of BSH to further explore the macro factors impact mechanism on the change of real exchange rate and the degree of explanation.The extension of theory consists in the introduction of demand factors,and considering the influence of the wage gap between departments.Besides,in the empirical part we will exam the explanatory ability of the extension model.Theoretically,we set that domestic departments include production department and consumer department,among which the production department is divided into trade and non-trade department.Manufacturers employ labor force to produce trade and non-trade goods according to the principle of profit maximization.Consumption departments allocate consumption between two products according to the principle of utility maximization.The product price is determined by supply and demand in the market,and the equilibrium condition of market clearing is the equal supply and demand of domestic non-tradable goods market.Classic BSH points that two types of product changes in relative prices are only caused by production department productivity change,and the theoretical framework on the classic BSH introduce the demand levels,think the relative price is determined by the two departments,the interaction of supply and demand decide the equilibrium price.On the basis of the above expansion,this paper focuses on the barriers of inter-sectoral labor transfer.Classical BSH holds that labor force moves freely between trade and non-trade sectors,so the wage level of the two sectors is roughly equal.In order to explore whether there is friction in a country's labor market and whether labor can move freely,this paper constructs the inter-sectoral relative wage ratio as a yardstick to measure obstacles to labor transfer.If the relative wage of the trade non-trade sector is significantly 1,it indicates that the free movement of labor force is consistent with the classical BSH.If the ratio is not 1,it indicates that there is an obstacle to the cross-sectoral labor transfer,and the hypothesis of BSH is unrealistic.In order to compare the explanatory power of the two models,we set up 2 models:Model 1 assumes that there is a labor transfer barrier between departments to explore the impact of the barrier on a country's relative price;Model 2 ignores the barriers to transfer.The default BSH assumes that labor force can be transferred freely,explores the influence of labor productivity in trade sector on a country's relative price,and tests the core idea of classical BSH.The empirical part of this paper is divided into two parts.In the first part,variable coefficient model analysis is carried out with multinational panel data,we regress theoretical model and test the explanatory ability.In the second part,we regress SVAR model based on the time series of our country,and explore the theoretical framework of this article to our country in 1995 since the economic realities of whether have explain ability,and then explores our country labor transfer barriers-product relative prices-real exchange rate transmission mechanism was clear,and based on this put forward constructive Suggestions to China's exchange rate managementIn view of the first part,based on 2005 to 2016,we take Russia,Thailand.Japan.China Taiwan,mainland China,the six countries and regions as the research object,build the following indicators:relative labor productivity between trade and non-trade department,relative price index between trade and non-trade trade department,relative wage index between non-trade department and trade department,the added value of trade sector,consumption and other variables.In the second part,we use the data of China's relative wages,relative prices and the real exchange rate between RMB and us dollar from 1995 to 2016 to explore the current correlation and inter-temporal impact of the above three variables.The following conclusions are drawn through empirical research.First,there are barriers to inter-sectoral labor transfer.The assumption of free movement is not applicable,and the wage difference between sectors is obvious and the relative wage situation of each country has its particularity.Secondly,there is a negative correlation between the relative wages of non-tradable sectors and the relative prices of non-tradable products.That is to say,the lower wages of non-tradable sectors lead to the rise of unemployment in this sector.Non-tradable commodities cannot be supplemented by international trade,and the shortage of supply leads to the rise of their relative prices.Third,barriers to inter-sectoral labor transfer in China have a stable and significant impact on the relative prices between tradable and non-tradable goods,and the impact has a lag affect.What's more,changes in the relative prices of non-tradable goods are positively correlated with the actual exchange rate of China and the United States.That is,the increase of the relative price growth rate of non-tradable goods will be accompanied by the increase of the real exchange rate depreciation.The research results of this paper have some practical significance for China's exchange rate management program.At present,in order to maintain the stability of the exchange rate market,the adjustment measures of the central bank mainly include market communication,foreign exchange reserve sales and other measures.The impact of such measures on the exchange rate basically lies in short-term fluctuations of the exchange rate through supply and demand management,which to some extent limits the flexibility of exchange rate fluctuations.This paper holds that the exchange rate of a country is the reflection of the intrinsic value of its currency relative to other countries,which depends on the macro factors such a a country's trade production and economic development,and is a reflection of:a country's economic strength.Therefore,the direction of exchange rate trend should be based on the height of macroeconomic operation.According to the text conclusion,the adjustment of equilibrium exchange rate trend through relative price mechanism can be taken as a fundamental exchange rate management measure to reduce barriers to inter-sectoral wage and labor transfer.Therefore,to some extent,the conclusions of this paper provide new ideas and directions for China's exchange rate management measures.