Abstract:
To be a more flexible exchange rate regime is an important goal of the third plenary session of 18th central committee of CPC. Would this change increase the economic welfare? Based on the frame of gravity model, this paper estimates the effects of the different exchange rate regime to trade, and with the instrument variable method, we also re-evaluate the effects of openness to income. Finally, we estimate the effects of the changing exchange rate regime to income by the way of trade. We find that, comparing with floating exchange rate regime, the fixed exchange rate regime and the intermediate exchange rate regime have the higher trade and income effects. The welfare gains or losses are changed depending on the openness in different countries. Specifically, China has changed the exchange rate regime from fixed exchange rate to the intermediate exchange rate in 2005, and this decision has improved our welfare which is equal to 1.09% of the GDP.
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