This paper constructs an SV-TVP-SVAR model to identify the time-varying relationships among China's fiscal expenditure, real exchange rate and net export. Utilizing the typical reform incidences of RMB exchange rate within the regimes of 1998Q1,2005Q3,2008Q3 and 2010Q3,this paper depicts China's fiscal effects in different regimes. The results show that the effects of China's fiscal expenditure on real exchange rate and net export have significant time-varying characteristics. Overall,China experiences a switching process between“twin divergence”and“twin deficits”. Moreover, the time-varying effects have certain time lags with which the short term(nearly 2 quarters)effect is most significant. It is also found that the reform of RMB exchange rate will significantly affect China's fiscal effects. China's“twin deficits”linkage has a strong current effect at the point of implementing the floating exchange rate system while which has a strong lagging effect and uncertainty at the point of implementing the fixed exchange rate system.
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