Analysis of the impact of the trade war between China and America on the RMB exchange rate under the R-vine copula model from the perspective of the global value chain

Abstract

AbstractChanges in the RMB exchange rate (ExRate) impact major strategic directions, such as China’s rise, the “Belt and Road” initiative, and RMB internationalization. Studying the impact of the trade war between China and America on the RMB ExRate is significant. This paper constructs an R-vine copula model and studies the influencing factors of the ExRate and the mechanism of the trade war between China and America on the RMB ExRate. The impact of the Trade war between China and America on the RMB ExRate is analyzed in detail. Besides, the R-vine copula model is used to analyze the fluctuations of the ExRate returns of the Association of Southeast Asian Nations (ASEAN). The R-vine copula model is employed to study the volatility of the ExRate return series of ASEAN countries, and the mean of the ExRate dependence coefficients of ASEAN and the estimation results of R-vine copula parameters are analyzed. Finally, the results are obtained. There is a relation between the RMB ExRate and Chinese tariffs in analyzing the impact of the trade war between China and America on the RMB ExRate. There is a negative correlation between tariffs and the RMB ExRate. There is a positive correlation between the value of the RMB and China’s trade surplus without considering the monetary policy. The value of the Chinese currency has risen as China’s trade surplus has grown. Stable foreign exchange reserves can stabilize the RMB ExRate. It is concluded that the economic and trade cooperation between China and ASEAN has become increasingly frequent under the influence of the trade war between China and America through the R-vine copula model analysis. The ExRate risk further increases and the ExRate yield sequence fluctuates significantly. The lower tail dependency coefficient for market tail dependencies is slightly larger than the upper tail dependency coefficient. The impact of bad news on the currency ExRate market is clear. In the context of the current trade war between China and America intensifying, the sharp fluctuations in the RMB ExRate caused by the trade war between China and America have promoted the transformation of economic growth. The shift from commodity export to capital export is realized. The reasons for RMB ExRate changes need to be explored. It is recommended to continuously deepen the reform of the RMB ExRate system and maintain the stable development of the ExRate.