An Empirical Analysis of the Effect of RMB/Dollar Exchange Rate Variation on Sino-US Trade Balance

The paper empirically investigates the effect of RMB/Dollar exchange rate variation on Sino-US trade balance.We estimate the price and real income elasticity of China's import and export with China and find that that Marshall-Lerner condition is satisfied,which suggests that the appreciation of RMB could be helpful to alleviate the US trade deficit with China in the short run.However,we also find that the real income elasticity of China's export to the US is much larger than that of America's export to China,which implies that the changes in real income of both the US and China also attribute significantly to Sino-US trade balance.Therefore,only the appreciation of RMB or the adjustment of exchange rate policy in general by Chinese government,would not,suffice to improve the US trade imbalance with China.