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The Influence of USD/CNY Foreign Exchange Rate, RMB NEER and Spatial Effects on China’s Foreign Trade

The Influence of USD/CNY Foreign Exchange Rate, RMB NEER and Spatial Effects on China’s Foreign... PurposeThis paper analyzes the influence of different forms of RMB foreign exchange rates on Chinese foreign trade.Design/methodology/approachThis paper constructed Spatial Panel model and MCMC estimation method and collected the data of 25 countries’ (including China) quarterly macroeconomic data from first quarter of 1993 until third quarter of 2013 to conduct the data analysis. FindingsThis paper finds that USD/CNY, which is widely used in trade settlement, is more significant in effecting Chinese export.1% appreciation of CNY against USD will lead to 1.532% decline of Chinese export, while 1% appreciation of CNY NEER only 0.42%. What’s more, 1% increases of the volatility of USD/CNY results in 0.579% decline of Chinese export. As policy suggestions, we should further reform the foreign exchange derivative market in China, and provide more currency derivatives, so that the ability of Chinese economy to deal with foreign exchange risk could be improved.Research limitations/implicationsEffect of exchange rate on imports and exports relates to the future direction of China's exchange rate policy. This paper claims that China should accelerate the construction of foreign exchange derivatives market, improving the ability to respond quickly to foreign currency risk Practical implicationsFirst, denominated exchange rate has more significant impact on the Chinese export trade to other countries than effective exchange rate. Second, the RMB exchange rate fluctuations also significantly affect the export trade. Third, China's import and export trade have significant spatial effect. Originality/valueThis article uses Spatial Panel Model with the refined data to study various factors on the import and export trade, and thus more comprehensive analysis on the impact of the exchange rate on the import and export trade with other major countries. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png China Finance Review International Emerald Publishing

The Influence of USD/CNY Foreign Exchange Rate, RMB NEER and Spatial Effects on China’s Foreign Trade

Wang, Hua; Zhu, Junjun
China Finance Review International , Volume 6 (3) – Aug 15, 2016
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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
2044-1398
DOI
10.1108/CFRI-09-2014-0067
Publisher site
See Article on Publisher Site

Abstract

PurposeThis paper analyzes the influence of different forms of RMB foreign exchange rates on Chinese foreign trade.Design/methodology/approachThis paper constructed Spatial Panel model and MCMC estimation method and collected the data of 25 countries’ (including China) quarterly macroeconomic data from first quarter of 1993 until third quarter of 2013 to conduct the data analysis. FindingsThis paper finds that USD/CNY, which is widely used in trade settlement, is more significant in effecting Chinese export.1% appreciation of CNY against USD will lead to 1.532% decline of Chinese export, while 1% appreciation of CNY NEER only 0.42%. What’s more, 1% increases of the volatility of USD/CNY results in 0.579% decline of Chinese export. As policy suggestions, we should further reform the foreign exchange derivative market in China, and provide more currency derivatives, so that the ability of Chinese economy to deal with foreign exchange risk could be improved.Research limitations/implicationsEffect of exchange rate on imports and exports relates to the future direction of China's exchange rate policy. This paper claims that China should accelerate the construction of foreign exchange derivatives market, improving the ability to respond quickly to foreign currency risk Practical implicationsFirst, denominated exchange rate has more significant impact on the Chinese export trade to other countries than effective exchange rate. Second, the RMB exchange rate fluctuations also significantly affect the export trade. Third, China's import and export trade have significant spatial effect. Originality/valueThis article uses Spatial Panel Model with the refined data to study various factors on the import and export trade, and thus more comprehensive analysis on the impact of the exchange rate on the import and export trade with other major countries.

Journal

China Finance Review International – Emerald Publishing

Published: Aug 15, 2016

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