JFRM  Vol.1 No.2 , June 2012
The Threshold Effects of RMB Exchange Rate Fluctuations on Imports and Exports
Author(s) Chuanglian Chen
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.

Cite this paper
Chen, C. (2012). The Threshold Effects of RMB Exchange Rate Fluctuations on Imports and Exports. Journal of Financial Risk Management, 1, 15-20. doi: 10.4236/jfrm.2012.12003.
References
[1]   Bahmani-Oskooee, M., & Niroomand, F. (1998). Long-run price elasticites and the marshall-lerner condition revisited. Economics Letters, 61, 101-109. doi:10.1016/S0165-1765(98)00147-5

[2]   De Silva, D., & Zhu, Z. (2004). Sri Lanka’s experiment with devaluation: VAR and ECM analysis of the exchange rate effects on trade balance and GDP. The International Trade Journal, 18, 269-301. doi:10.1080/08853900490518181

[3]   Hansen, B. E. (1996). Inference when a nuisance parameter is not identifed under the null hypothesis. Econometrica, 64, 413-430. doi:10.2307/2171789

[4]   Hansen, B. E. (1999). Threshold effects in non-dynamic panels: Estimation, testing and inference. Journal of Econometrics, 93, 345-368. doi:10.1016/S0304-4076(99)00025-1

[5]   Luis, S. (2012). Simultaneity between export and import flows and the Marshall-Lerner condition. Economic Modelling, 29, 879-883. doi:10.1016/j.econmod.2011.10.011

[6]   Wilson, P. (2001). Exchange rates and the trade balance for dynamic asian economies—Does the J-curve exist for Singapore, Malaysia and Korea? Open Economic Review, 12, 389-413. doi:10.1023/A:1017982901034

[7]   Mohsen, B.-O., & Taggert, J. B. (1999). Bilateral J-Curve between US and her trading partners. Review of World Economics, 135, 156-165.

 
 
Top