The Empirical Analysis of the Influence of RMB Exchange Rate on China's Trade Balance

This paper investigated the relationship of bilateral exchange rate and bilateral trade balance by the use of Error Correction Model and the Geometric Distributed Lag Model according to the different character of China's 14 main trade partner's samples,and analyzed the short-run and long-run influences of bilateral exchange rate on bilateral trade balance and the differences of these influences.The analysis indicates that the depreciation of RMB can improve almost all China's trade partner's trade balance in the long-run and Marshall-Lerner conditions satisfied,and deteriorate most of all China's trade partner's trade balance in the short-run and Marshall-Lerner conditions dissatisfied.The influence of depreciation of bilateral exchange rate on bilateral trade balance appears J curve or W curve.The sensitivity of RMB bilateral exchange rate changes to bilateral trade balance in developed market partners is greater than that of the others.Along with the deepening of the reform of RMB exchange rate system,the mechanism of exchange rate pass-through will be perfected and these differences will be reduced gradually.