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
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