Regulation of Exchange Rate and Economic Growth and Its Effect on Chinese Economy

Abstract

Recently, China has become the world’s second largest economy behind only the United States of America. Until 1994, China used the fixed exchange rate and dual pricing system. A sharp fall in global oil prices aggravates the global downturn. Our key data were gotten from Macrotrends expertise in economic development and exchange rates. GDP Growth rate was more fluctuating pattern (variance 0.014, standard deviation 0.122) than exchange rate (Variance 0.004, standard deviation 0.07). From 1990-2019 both variables were analyzed. That means these do not vary systematically over time. In other words, they are time invariant. Regressing two series that are non-stationary likewise, yields a spurious (or nonsense) regression. So, to check it lets check the rule of thumb. We found a Durbin Watson Statistic of 0.612 and R square of 0.117. If we look the calculated t statistic with critical values at 5% significance level only Domestic Demand shows a significant relationship (4.00 >2.756) with GDP of China. A variety of analytical studies suggest that Competitive Exchange Rate strategies are suitable for economic development. We also argued that, considering some constraints on usable policy alternatives, there are theoretical origins in a policy approach such as an ideal strategy.