The bilateral real exchange rates and trade between China and the U.S.

Abstract

Abstract This paper examines the impacts of the real exchange rates between the renminbi and the US dollar on the trade between the two countries. Because various tests with the quarterly data from 1986Q1 to 2006Q2 imply a structural break around 1994Q1, the export equations are estimated using the quarterly data from 1995Q1 to 2006Q2. According to the estimation of cointegrating vectors, 1% depreciation of the renminbi raises the Chinese exports to the US by 1.7%, while 1% depreciation of the US dollar raises the US exports to China by around 0.4%.