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China'S Exchange Rate Appreciation In The Light Of The Earlier Japanese Experience

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  • Ronald McKinnon
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    Abstract

    For creditor countries such as China on the periphery of the dollar standard with current account surpluses, foreign mercantile pressure to appreciate their currencies and become more flexible is misplaced. Just the expectation of variable exchange appreciation seriously disrupts the natural tendency for wage growth to balance productivity growth and thus worsens the (incipient) deflation that China now faces. It could create a zero-interest liquidity trap in financial markets that leaves the central bank helpless to combat future deflation arising out of actual currency appreciation, as with the earlier experience of Japan. Copyright 2006 The Author Journal compilation 2006 Blackwell Publishing Ltd

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Pacific Economic Review.

    Volume (Year): 11 (2006)
    Issue (Month): 3 (October)
    Pages: 287-298

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    Handle: RePEc:bla:pacecr:v:11:y:2006:i:3:p:287-298

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=1361-374X

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    Cited by:
    1. Cho-Hoi Hui & Chi-Fai Lo & Tsz-Kin Chung, 2008. "Market Expectation of Appreciation of the Renminbi," Working Papers 0803, Hong Kong Monetary Authority.
    2. Robert Lafrance, 2008. "China's Exchange Rate Policy: A Survey of the Literature," Discussion Papers 08-5, Bank of Canada.
    3. Rod Tyers & Iain Bain, 2008. "American And European Financial Shocks: Implications For Chinese Economic Performance," CAMA Working Papers 2008-08, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    4. Ying Wu, 2010. "Exchange Rates and Prices under Processing Trade: A Macroeconomic Analysis," Atlantic Economic Journal, International Atlantic Economic Society, vol. 38(3), pages 345-357, September.

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