The Study On The Impact Of Real Exchange Rate On Current Account Imbalance

In the context of the global economy,the world's current account imbalances have led to problems such as economic turmoil,political risks and security concerns.The exchange rate fluctuations in the current account imbalance adjustment process have been a hot topic of discussion.At the same time,the intensification of world trade imbalances and the deteriorating conditions of trade have fueled trade protectionism.Since 2018,the United States has attributed its huge trade deficit to China's trade surplus,and adopted unilateral trade protection measures such as tariff increase and scientific and technological warfare,which triggered a Sino-US trade war,which led to the continuous escalation of trade friction between China and the United States.This initiative has attracted the attention of all sectors of society for trade protection.Therefore,it is of practical significance to study the impact of trade openness and real exchange rate on the current account.In addition,capital flows in various countries are experiencing rapid growth,causing scholars to worry about the potential adverse consequences of these capital flows being suddenly interrupted.This article will examine the situation when capital flows are suddenly interrupted.Sudden interruptions in capital flows will have a substitution effect and a revenue effect on the real exchange rate,while the current account remains unchanged.The income effect causes the real exchange rate to depreciate,and the substitution effect requires the real exchange rate to appreciate.The final effect depends on the share of non-traded goods and traded goods,that is,trade openness.Therefore,it is of theoretical significance to use theoretical models and data empirical tests to test the effects.This paper first analyzes the real exchange rate,trade openness,and current account imbalances in countries around the world.After constructing a small two-sector open economy model,we analyze the trade openness and when the economy suffers from the external shock of sudden disruption of capital flows.The effect of the real exchange rate on the current account.Then using the quarterly data of 83 countries from 1990 to 2017,using the fixed-effects model to study the unbalanced panel data,the following conclusions are drawn:(1)The real exchange rate has a negative impact on the current account balance,indicating that the real exchange rate depreciation can be improved.Current account imbalance;(2)The intersection of trade openness and real exchange rate has a negative impact on the current account balance.The three interaction items that suddenly interruptthe dummy variable of the capital flow also have a negative impact on the current account balance,indicating trade.The more open economies can improve current account imbalances by depreciating smaller exchange rates.The robustness of the conclusions was verified by the robustness test of the method of substituting the main variables and classifying the sample countries and the re-testing of the endorsement using the dynamic GMM model.Finally,based on the conclusions drawn from theoretical models and empirical models,this paper provides some suggestions for countries to formulate exchange rate and trade policies: from an international perspective,countries should carefully formulate exchange rate policies,try to avoid exchange rate wars,and strive to improve international competition.Force against trade protectionism.Considering the Chinese level,first,the Chinese government should coordinate the formulation of monetary and fiscal policies.Second,actively play the role of the market and moderately relax the volatility range of the renminbi.Third,China resolutely opposes trade protectionism and promotes development through openness.