Real Exchange Rate, Expectation Deviation of Exchange Rate and Trade Balance [an error occurred while processing this directive]
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Economic Survey  2013, Vol. 1 Issue (6): 0156    DOI:
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Real Exchange Rate, Expectation Deviation of Exchange Rate and Trade Balance
CAI Hao-yi,JIANG Da-wei
School of Finance University of International Business and Economics,Beijing 100029,China
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Abstract Based on Balassa-Samuelson effect theory,this paper introduces the expectations and wage adjustments lag into the exchange rate pass-through equation and gets some basic properties of the real exchange rate: the real exchange rate is subject to random walk,and it is subject to random walk with a drift term in developing countries; Fluctuations of real exchange rate mainly derive from the fluctuations of expectation deviation. These findings well explain the question raised by Paul Krugman (1989) why the real exchange rate in the floating exchange rate system was much more volatile than in the fixed exchange rate system. This paper further analyzes the way the real exchange rate affects the balance of trade. The deviation of exchange rate expectation affects trade balance finally. Then through autoregression of the real effective exchange rate of RMB and the empirical test of Sino-US trade balance with the exchange rate expectation deviation,the conclusions of theoretical analysis are well proved.
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CA Gao-Yi
JIANG Da-Wei
Key wordsReal Exchange Rate,Random Walrk,Expectation Deviation,Trade Balance JEL Classification:F10,F31   G15   E31     
Received: 2013-11-06
ZTFLH:  F740  
Cite this article:   
CA Gao-Yi,JIANG Da-Wei. Real Exchange Rate, Expectation Deviation of Exchange Rate and Trade Balance. Economic Survey, 2013, 1(6): 0156.
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http://www.jjjw.org.cn/CN/Y2013/V1/I6/0156
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