A Study On The Non-Linear Effect Of Exchange Rate Fluctuation On Valuation Effect Change

In recent years,the research on the valuation effect of one country’s external imbalance adjustment has become a new hot spot in the research field of global economic imbalance,while the key of understanding the law of external imbalance adjustment is researching why China and United States differ giantly in the valuation effect of net foreign asset.What caused the long-term negative valuation effect in China and the continued positive valuation effect in the United States?What are the effects of exchange rate and rate of return on the adjustment of the valuation effect between China and the United States?Whether the effect of exchange rate fluctuations on the valuation effect is influenced by the difference of financial development in various countries,and what is the specific mechanism and effect such adjustment?To solve these questions,this thesis firstly analyzed the law of changes in net foreign assets grwoth and current account balances between China and United States,and used the indirect derivation strategy to estimate the scale of valuation effects between China and the United States.Secondly,a panel-vector autoregressive model was established based on the theory of exchange rate volatility and rate-of-return volatility adjustment of valuation effects,which was used to empirically analyze the impact characteristics and contribution of these two factors to China’s and US’s valuation effects.Finally,we established a panel-threshold regression model for samples from 35 countries and conducted an in-depth study of the impact of differences in financial development across countries on the valuation effect of exchange rate fluctuations.Based on the empirical results,the conclusions are as follows:First,exchange rate’s impact on valuation effect is influenced by financial development,and there are differences in the threshold effect of financial development between China and the United States.Among them,high scale of foreign exchange rate and continuous increase of RMB supply are the vital reasons why China’ s negative valuation effect rises.While the moderate depreciation of US dollar makes United States obtain positive valuation effect through high liberalization of capital account.Second,exchange rate fluctuation is the main reason for the difference of valuation effect adjustment between China and United States.The threshold panel model results show that the exchange rate has a greater influence on China’s valuation effect than the rate of return,and both the exchange rate and the rate of return contribute to the positive US valuation effect.We also found that the RMB exchange rate devaluation can not form a positive valuation effect in the short term,while the depreciation of the US dollar has brought positive valuation effect to the United States for a long period.Based on the above conclusions,this paper proposes several policy suggestions such as stablizing the RMB exchange rate,steadily promoting the internationalization of the RMB,optimizing the structure of reserve assets,monitoring currency liquidity,and prudently promoting the liberalization of capital account.