Chinese currency appreciation & depreciation: Effects of exchange rate changes on trade balance with the European Union
Tran Thi, Huong (2018)
Tran Thi, Huong
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Today, China is the second largest economy in the world. During the last decade, it witnessed an increasing surplus in the trade balance. The more goods and services China exports to the world, its currency becomes more potent in the international market. The main aims of this research are to study the Chinese currency exchange rate vis-à-vis other currencies, namely U.S dollar, euro, and U.K. pound; and how the respective exchange rate changes affect the trade balance with the European Union. To fulfill these aims, the research is approached quantitatively, and secondary data is collected to demonstrate the currency trends. Four multiple regression models (for four periods) are applied for examining the effect of exchange rate changes on the trade balance. Results show that the yuan mostly appreciated over other currencies during four periods and model 1, 2, 4 indicate independent variables explain to some extent of the variance in the trade balance. However, in model 3, independent variables do not make any unique contribution to the prediction of the trade balance. In conclusion, these exchange rate changes affect the trade balance, but the effect is still limited. Moreover, the multiple regression model may not be the best model to examine the exchange rate changes and the trade balance; the autoregressive model might be an optimal model for this research area.