Effect of RMB exchange rate changes on China's trade balance

Firstly,this paper reviews the research results about the effect of exchange rate changes on trade balance in the academic circles. On this basis,and analyses the mechanism of the effect of exchange rate changes on import and export trade balance. According to the imperfect substitutes theory,deducing empirical model of RMB exchange rate changes affect China's trade balance. Then,the author select the annual data from 1994 to 2010,using ADF test,Johansen cointegration test and Granger causality test to make a empirical analysis of the effect of RMB exchange rate changes on China's trade balance. The empirical results show that the effect of RMB exchange rate changes on China's trade balance is not significant. Finally,the paper puts forward relative countermeasures and suggestions,that is,China should further expand domestic demand to ease trade surplus,control the growth rate of the trade balance to relieve the pressure of RMB appreciation; People's Bank of China should remain the level of RMB exchange rate relatively stable.