The Threshold Effects of RMB Exchange Rate Fluctuations on Imports and Exports

Chuanglian Chen

School of Economics and Management, South China Normal University, Guangzhou, China.

DOI: 10.4236/jfrm.2012.12003                

Abstract

Using threshold panel model, we estimate the effectiveness of exchange rate to imports and exports. We conclude that there is a second threshold in both import and export regression models, and China’s trade flows don’t accord with ML condition, when RMB exchange rate appreciation is less than 7.8%. Whereas, when higher than 7.8%, the ML condition strongly holds, indicating that the RMB exchange rate appreciation would deteriorate the China’s international revenue. As RMB exchange rate to US dollar has experiences an appreciation of 22.2% from 2005Q3 to 2012Q1, thus China’s current account would be deteriorated. Therefore, some changes or policies should be made to deal with these problems.

Keywords

Threshold Effects, Exchange Rate, Imports, Marshall-Lener Condition

Conflicts of Interest

The authors declare no conflicts of interest.

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