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Trade balance and exchange rate changes

2019-11-19 来源: 51Due教员组 类别: Essay范文

下面为大家整理一篇优秀的essay代写范文- Trade balance and exchange rate changes,供大家参考学习,这篇论文讨论了贸易收支与汇率变动。从弹性论、购买力平价理论和不完全汇率传递理论角度出发进行分析,贸易收支与汇率之间关系密切,相互作用明显。在国际贸易的实际运行中,贸易收支和汇率变动又各自受诸多因素的影响和制约。在不同时期贸易收支对汇率的影响不同。在复杂的国际环境下,贸易收支与汇率之间的敏感度并不强。

From the perspective of elasticity theory, purchasing power parity theory and incomplete exchange rate pass-through theory, trade balance and exchange rate are closely related and have obvious interaction. In the actual operation of international trade, trade balance and exchange rate fluctuation are affected and restricted by many factors respectively. The trade balance has different effects on the exchange rate in different periods. The impact of exchange rate fluctuations on trade balance needs to be satisfied that the sum of demand elasticity of import commodities and export commodities is greater than 1. Only then can exchange rate fluctuations play an obvious role in adjusting trade balance. Otherwise, it is invalid. In a complex international environment, the sensitivity between trade balance and exchange rate is not strong.

Elasticity theory refers to the adjustment of current account imbalance with the change of exchange rate and price when income remains unchanged. Because this adjustment mechanism is closely related to the elasticity of supply and demand of import and export commodities, it is called elasticity theory. Elasticity theory is a theory applicable to balance of payments adjustment. It was put forward by Joan Robinson, an economist at the university of Cambridge in the 1930s. During this period, the international gold standard system was in a state of collapse. Through research, Joan Robinson formally put forward the viewpoint of elasticity theory on the basis of Marshall microeconomics and local equilibrium analysis method.

Elasticity theory is based on four assumptions: the overall price level of a country is basically unchanged; The level of national income has not changed much. The exchange rate system is not a free-floating exchange rate system and is determined by the monetary authorities, not the market. The fluctuation of exchange rate affects the price of import and export goods. A rise in the exchange rate of the domestic currency will cause the export commodities of the country to show a rise in price when denominated in foreign currency, while the import commodities will show a decline in price when priced in local currency, forming the effect of "suppressing the increase in import and export". Therefore, elasticity theory analyzes the impact of exchange rate fluctuations on trade balance according to the demand elasticity of export commodities and import commodities.

Purchasing power parity theory is a theory that studies and compares the purchasing power relations between different currencies in different countries. One of its theoretical premises is to adopt a floating exchange rate system, that is, there is no foreign exchange control. PPP includes absolute PPP and relative PPP. Absolute purchasing power parity is based on the law of one price. If the value of a good is fixed, its price should be the same in two different countries in the same currency. Under the same commodity structure of the two countries, the value of the two currencies can be reflected by the purchasing power of the two currencies. It can be considered that the purchasing power parity between the two countries' currencies determines the equilibrium exchange rate level to some extent. However, the absolute purchasing power is defective, which is mainly reflected in the fact that the one-price law must be established in the competitive market environment if it is to be established, and the mobile cost and information cost of product space should be zero. The theory of relative purchasing power parity holds that the price level is the main factor determining the exchange rate fluctuation. It also has two disadvantages: first, in relative purchasing power parity, exchange rate fluctuation needs to determine an equilibrium basis point as a reference point, and there is no accurate method to determine the equilibrium point. Second, the price index is an important index to consider the rate of inflation.

On the whole, the trend of purchasing power parity is generally consistent with the long-term trend of exchange rate. It can be considered that the theory of purchasing power parity is a relatively good way to measure and judge the change of long-term exchange rate trend.

Incomplete exchange rate pass-through theory means that exchange rate changes cannot be reflected in the price of traded goods 1:1. Traditional exchange rate pass-through theory holds that in import and export trade, import and export prices will change in proportion to exchange rate changes without considering transportation costs, tariffs and some barriers in the process of trade. However, more empirical studies show that the pass-through of exchange rate changes to the price level is not complete in most cases. A number of American economists have shown that the exchange rate fluctuations lead to the price changes of import and export commodities between 40% and 50%. In China, bu yongxiang, deputy director of the financial research institute of the People's Bank of China, also pointed out through research that a change of 1 percentage point in the nominal exchange rate of RMB will produce the same direction change in the retail price index and the producer price index, with a range of 0.47 percentage point and 0.53 percentage point respectively. It can be seen that it is effective to adjust the trade balance through exchange rate fluctuations, but its role is also limited in the case of incomplete exchange rate pass-through. If the balance of trade balance is to be achieved, it must rely on more substantial exchange rate fluctuations.

On the basis of exchange rate theory, the interaction between trade balance and exchange rate can be analyzed to explain the correlation between trade balance and RMB exchange rate in sino-us trade disputes.

The change of a country's exchange rate is affected and restricted by many factors, including the level of trade balance, the rate of inflation, the level of interest rate and the domestic exchange rate policy. Sometimes these factors work together, sometimes individually, and sometimes they help or cancel each other out. Trade balance is an important factor. Trade balance can also be referred to as "balance of trade", which refers to the comprehensive situation of a country's import and export trade in a certain period. The focus of trade is around foreign trade. The change of trade balance will change the supply relationship in the foreign exchange market of a country and then affect the exchange rate level. Specifically, if a country's trade balance is in a state of large surplus, it will lead to the increase of foreign exchange inflow into the country, which is reflected in the demand for foreign exchange less than the supply of foreign exchange, thus causing the appreciation of domestic currency and depreciation of foreign currency. On the other hand, if a country's trade balance is in a big deficit, the foreign exchange inflow into the country will also decrease, then the foreign exchange demand will exceed the foreign exchange supply, resulting in the devaluation of domestic currency and the appreciation of foreign currency.

Generally speaking, the factors that affect the exchange rate change are diverse, and they all play a role in the exchange rate change to some extent. Except for other factors, we will analyze the impact of trade balance on the exchange rate. International trade can generally be regarded as a reflection of the core competitiveness of a country's exports, which, under the influence of purchasing power parity theory, will also be projected into the confidence of investors in the currency of that country. If a country's trade surplus continues to grow, it is bound to increase investor confidence in and demand for its currency, which in turn will lead to currency appreciation. This effect is not limited to the short term. It is evident as long as the trade surplus continues, and the larger the trade surplus, the stronger the currency appreciation. For example, the degree of confidence and demand for RMB in all countries in the world have been generally improved, which has resulted in a sharp decline in the exchange rate of RMB against the us dollar. From the perspective of the situation after China's accession to the WTO, the change from 8.28USD/CNY in 2001 to 6.88USD/CNY in 2019 is sufficient to show the extent of the impact of trade balance on the exchange rate change. On the other hand, the larger and persistent trade deficit of a country will lead to less confidence and demand of investors in the country's currency, and the larger depreciation of the country's currency.

The change of a country's exchange rate will lead to changes in the price of its import and export commodities, restrain or stimulate the degree of demand for import and export commodities, thus affecting the import and export scale and trade balance of the country. Generally speaking, if the exchange rate of domestic currency rises, that is, the domestic currency depreciates, then the price of domestic goods in foreign currency will fall, while the price of foreign goods in local currency will rise. When the demand elasticity of import and export commodities is greater than 1, the foreign demand for domestic commodities will increase, promoting domestic exports, while domestic demand for foreign commodities decreases, reducing domestic imports. The result has been an increase in the country's export earnings and a decrease in its import expenditure, which has improved the country's trade balance. Conversely, if the domestic currency exchange rate declines, that is, the domestic currency appreciates, the price of domestic goods in foreign currency will rise, and the price of foreign goods in local currency will accordingly fall. Similarly, once the demand elasticity of import and export commodities is greater than 1, the foreign demand for domestic commodities will decrease, which inhibits domestic exports, while domestic demand for foreign commodities will rise, thus stimulating domestic imports. The result is lower export revenues and higher import spending, worsening the country's trade balance.

It is worth noting that the actual impact of exchange rate fluctuations on trade balance does not occur at any time. The reason is that the exchange rate is not fully pass-through, and the degree of its impact is also restricted by the elasticity of demand of import and export commodities. Elasticity of demand refers to the degree or proportion of increase or decrease in demand due to the rise or fall of commodity prices. In a country's currency, for example, on the one hand, currencies after a period of time, the country's exports will increase, but the country's exports of foreign currency prices are falling, as a result, the country's foreign exchange income may not be increased with the increase of export quantity growth, only when the export commodities incremental reach a considerable degree, just offset and more than likely because the foreign currency price decline brought about by the loss. Much depends on the elasticity of demand for the commodity in the importing country. On the other hand, after currency depreciation, the price of imported goods will increase, while the demand will decrease. The extent of reduction also depends on the elasticity of demand of the importing country. Considering the above two aspects, it is not difficult to find that as long as the demand elasticity of import and export commodities is large enough to meet the marshal-lerner condition, and the sum of the two is greater than 1, that is, D 1, then the domestic currency depreciation can improve the trade balance. If D 0 or D=1, it has little or no effect.

Through the above analysis, it can be found that there is indeed an interactive and causal relationship between trade balance and exchange rate fluctuations, but in actual operation, these two are also affected and restricted by other factors. Trade balance has a greater impact on exchange rate fluctuations, but it is also affected by inflation rate, interest rate and exchange rate policy. Therefore, the impact of trade balance on exchange rate in different periods can not be generalized. The impact of exchange rate fluctuations on trade balance needs to be satisfied that the sum of demand elasticity of import commodities and export commodities is greater than 1. Only then can exchange rate fluctuations play an obvious role in adjusting trade balance. Otherwise, it is invalid. This can come to the conclusion that, under the complex international environment, trade balance and exchange rate between the sensitivity is not strong, so ease trade friction and could not be addressed relies mainly on the adjustment of a country's currency, the two countries are available from the import and export trade policy, import and export market structure, tax system arrangement and so on aspects to improve, to ensure that the currency exchange rate is relatively stable.

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