The Impact Of Exchange Rate Shocks On Macroeconomic Fluctuation

Under the condition of an open economy,the exchange rate is an important factor affecting the level of domestic economic development and trade balance,and it is also an important economic price indicator,which plays an important role in the formulation of a country’s macroeconomic policy,economic forecasting and steady economic operation.Exchange rate changes will affect a country’s prices,wages,money supply,inflation,trade and other factors,and ultimately affect the country’s macroeconomic development.Therefore,it is particularly important to clarify how the changes in the RMB exchange rate affect China’s macro economy under the condition of an open economy.Therefore,based on summarizing the previous research,a theoretical model of dynamic stochastic general equilibrium(DSGE)is constructed in this paper to study the impact of exchange rate shocks on macroeconomic performance under different degrees of openness.And adopts the empirical method of time-varying parameters VAR to study and analyze the macroeconomic impact of RMB exchange rate.First,a dynamic stochastic general equilibrium model under the open economy is constructed,which includes three departments: household,manufacturer and monetary Authorities,to analyze the impact mechanism of RMB exchange rate fluctuations on China’s macroeconomic variables.The model is calibrated and estimated using Chinese macroeconomic data,and the values of some parameters are estimated using Bayesian estimation method,and then the model is simulated to analyze the different effects of RMB exchange rate shock on China’s macroeconomic variables.Further,the time-varying parameter VAR model was used to empirically test the role of RMB exchange rate on macroeconomics.Finally,the conclusions of this paper are drawn,which remind policymakers to always pay attention to the fluctuations of the RMB exchange rate and maintain the stability of the currency,which is of great significance to China’s macroeconomic growth and promote stable economic development.After mechanism analysis and empirical research,the results show that: First,RMB exchange rate has a significant impact on the country’s macroeconomic variables.When the economic system is affected by a positive impact of one unit of real exchange rate,domestic consumption,prices,wages,output,and trade balances will rise to varying degrees.But over time,the variables slowly return to the steady-state level.With the weakening of the impact and reasonable macro-control,the domestic economy will gradually return to a stable operating state.Second,the magnitude of the impact of exchange rate shocks on macroeconomic variables depends on how open a country is to the outside world.Under different degrees of opening up,macroeconomic variables respond in the same direction to exchange rate shocks.However,with the improvement of the degree of opening up,when various economic variables are affected by exchange rate shocks,it takes a longer time to return to a steady state.This means that the higher the degree of opening up,the greater the impact of external shocks on the domestic economy,and the longer the impact time.Third,The impact of exchange rate shocks on macroeconomic variables is dynamic and time-varying.Especially in the long run,the macroeconomic response to exchange rate shocks has a significant time-varying character.On the basis of the above findings,this paper gives the following recommendations:First of all,in terms of the stability of the RMB exchange rate,it is necessary to actively guide the RMB exchange rate to truly reflect market supply and demand,and further establish a long-term market mechanism for the exchange rate to adjust the balance of international payments.Improve the foreign exchange market and improve the foreign exchange management system.Actively promote the process of RMB internationalization,and at the same time actively strengthen macro-prudential financial supervision.Second,in terms of opening up to the outside world,we should further expand our opening up to the outside world while maintaining the moderation and rationality of the degree of opening up.Maintain a reasonable proportion of openness to the outside world and the volume of China’s economy to achieve a higher level of openness.Accelerate the upgrading of the industrial structure and readjust the structure of foreign trade.And improve the terms of trade,a higher level,more reasonable opening up to drive higher quality economic development.