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The objective of this paper is to investigate the dynamic relationship between China′s trade balance (T) and macroeconomic variables: domestic and foreign output (Y and Y+* ), real exchange rate (E), domestic and foreign money supply (M and M+*). The ADF Unit Root results show that the variables are all integrated of order I (1). The trade balance in China is not cointegrated with a number of variables, including the exchange rate. Absorption, elasticity, and monetary models are compared, and the elastic model performs better. There has been J| curve in China, and the devaluations have had significant effect on the trade balance.
The objective of this paper is to investigate the dynamic relationship between China’s trade balance (T) and macroeconomic variables: domestic and foreign output (Y and Y + *), real exchange rate (E), domestic and foreign money supply (M and M + *). The ADF Unit Root results show that the variables are all integrated in order I (1). The trade balance in China is not cointegrated with a number of variables, including the exchange rate. Absorption, elasticity, and monetary models are compared, and the elastic model performs better. There has been J | curve in China, and the devaluation have had significant effect on the trade balance.