Effective exchange rate and Chinese exports: An empirical analysis based on GARCH-GED and VEC models

Based on monthly data, Johansen multivariate cointegration methods and vector correction models (VEC) are applied to measure the impact of RMB effective exchange rate and its variability on total exports and exports classified by Standard International Trade Classification (SITC). RMB effective exchange rate variability is estimated by the conditional variance of GARCH-GED model, i.e., a generalized autoregressive conditional heteroscedastic (GARCH) model where the error term comes from generalized error distribution (GED). The results show that price elasticity of foodstuffs & beverages and manufactured goods is rather high. The empirical analysis can´t deny that appropriate exchange rate variability is helpful to exports. In the long run, exchange rate variability upgrades Chinese industrial structure and improves the method of commercial trade.