Abstract This paper constructs a general equilibrium model with imported intermediate goods and fiscal policy. The optimal weights are derived,aiming at stabilizing trade balance of an economy.We find that the home country’s exchange rate against the numeraire should respond to the changes in the price of intermediate goods and government purchase expenditure,even though real exchange rate of the third country is kept unchanged. The optimal weight is affected by the output elasticity of imported intermediate goods. Base on China’s experience,the empirical analysis result has confirmed the theoretical model conculsion.
2014, Vol. 31 
