Real Exchange Rate, Trade Balance and Economic Shocks : Evidence from Sino-Japanese Economic Relation

This paper uses a structural VAR model to estimate effects of economic shocks happened in China on the real exchange rate and the trade balance between China and Japan. We find that nominal shocks will give persistent effects on the real exchange rate and the trade balance. However, the variation in the real. exchange rate is mostly occurred by both aggregate supply and aggregate demand shocks, while the variation in the trade balance is mostly occurred by nominal shocks. JEL classification: C32 ; F15 ; F3