Research On The Impact Of Real Exchange Rate On Income Inequality

With the development of economic globalization,income inequality has become increasingly prominent.According to the world inequality report released by the World Inequality Research Institute(WID),the income gap of almost countries in the world has been widening at different speeds since 1980 to 2016.As the embodiment of the relative purchasing power between countries,the exchange rate changes guide the flow and distribution of international resources,affect the income inequality between regions.Therefore,this paper takes the real exchange rate as the starting point to explore the relationship between the real exchange rate and income inequality,hoping to provide a theoretical and empirical basis for the government to give full play to the role of exchange rate in regulating income inequality.Based on the literature review on the relationship between exchange rate and income inequality at home and abroad,this paper divides the exchange rate index into two different dimensions: exchange rate level change and exchange rate fluctuation,and theoretically discusses the asymmetric effect of exchange rate level change on income inequality and the impact mechanism of exchange rate fluctuation on income inequality.On this basis,this paper puts forward two research hypotheses to be tested:(1)the impact of real exchange rate level changes on income inequality is asymmetric;(2)the increase of real exchange rate fluctuations will improve income inequality.Then,this paper selects the annual and monthly data of China,the United States,the United Kingdom,Germany,Brazil and Canada from 1980 to 2017,uses GARCH model to calculate the real exchange rate volatility coefficient,and empirically tests the relationship between the real exchange rate and income inequality through Panel regression model,ARDL model and NARDL model.The empirical research shows:(1)The real exchange rate has an asymmetric impact on income inequality,which has been well verified in China,Germany and Brazil.For example,in China,the appreciation of exchange rate will worsen income inequality,and the depreciation of exchange rate will also aggravate income inequality,but the influence of exchange rate depreciation is far less than that of exchange rate appreciation.(2)The effect of real exchange rate on income inequality is heterogeneous in different regions.Specifically,the impact of real exchange rate fluctuations on income inequality is not consistent among different countries: In China,the United States,the United Kingdom and Canada,in the short term,the increase of exchange rate volatility will help improve income inequality,in the long term,the increase of exchange rate volatility will worsen income inequality;In Germany and Brazil,the short-term exchange rate volatility and income inequality appear,in the long run,the increase of exchange rate volatility will help to improve income inequality.