RMB Exchange Rate and China's Economic Growth: An Empirical Study of State Space Model and Mediation Effect Testing

Based on China's time series data from January 1995 to June 2014, the paper applies the state space model and the mediation effect testing methods to analyze the relationship between the RMB real effective exchange rate and economic growth and internal mechanism.The empirical analysis shows that the real effective exchange rate's influence of RMB on China's economic growth depends on the actual mediation effect of exports. The paper also finds that the RMB effective exchange rate depreciation has a significant positive effect on both actual exports and economic growth. The paper offers references for decision-making departments of the Chinese government when they formulate policies.