The Bilateral Real Exchange Rates and Trade Between China and the U.S.SaangJoon Baak, Waseda University Abstract This paper examines the impacts of the real exchange rates between the Chinese renminbi and the US dollar on the trade between the two countries. Empirical test results, which have analyzed the quarterly data covering the time period from the first quarter of 1986 to the last quarter of 2003, show significant long-run impacts of the exchange rates. In particular, according to the estimation of cointegrating vectors, one percent depreciation of the Chinese renminbi against the US dollar raises the Chinese exports to the US by slightly more than one percent, while one percent depreciation of the US dollar against the Chinese renminbi raises the US exports to China by around 0.4 percent. In addition, the exchange rate of a competing country (Korea, in this paper), the real GDP of the importing country, and the exchange rate volatility turn out to have significant and expected impacts on the exports of the two countries. On the contrary, the short-run impacts of the explanatory variables are not clearly detected by the error correction models. Even so, the estimation results of the error correction models also confirm the existence of cointegrating vectors. Keywords: Export, the Chinese renminbi, the US dollar, Cointegration, Error
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