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Appreciating the Renminbi

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  • Rod Tyers
  • Ying Zhang

Abstract

International pressure to revalue China’s currency stems in part from the expectation that rapid economic growth should be associated with an underlying real exchange rate appreciation. This hinges on the Balassa-Samuelson hypothesis, which sees growth as stemming from improvements in traded sector productivity and associated rises in wages and non-traded prices. Yet, while evidence on China’s productivity and prices supports this hypothesis, its real exchange rate has shown no long run tendency to appreciate. The use of a global numerical model allows extensions of the hypothesis, including failures of the law of one price for tradable goods, which point to WTO accession trade reforms and China’s high saving rate as key depreciating forces since the late 1990s. The same model is then applied to the implications of premature RMB appreciation. It is shown that, unless this is achieved in association with the repatriation of foreign reserves, which would require thus far unavailable financial depth in the Chinese economy, unilateral RMB appreciation would be destructive of both Chinese and global interests.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal The World Economy.

Volume (Year): 34 (2011)
Issue (Month): 2 (02)
Pages: 265-297

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Handle: RePEc:bla:worlde:v:34:y:2011:i:2:p:265-297

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References

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Citations

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Cited by:
  1. Rod Tyers & Ling Huang, 2009. "Combating China’s Export Contraction: Fiscal Expansion or Accelerated Industrial Reform?," Economics Discussion / Working Papers, The University of Western Australia, Department of Economics 09-15, The University of Western Australia, Department of Economics.
  2. Rod Tyers, 2008. "Competition Policy, Corporate Saving And China'S Current Account Surplus," CAMA Working Papers 2008-21, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  3. Rod Tyers, 2013. "Looking Inward for Transformative Growth in China," CAMA Working Papers 2013-48, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. Rod Tyers, 2013. "International Effects of China's Rise and Transition: Neoclassical and Keynesian Perspectives," CAMA Working Papers 2013-44, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  5. Rod Tyers & Iain Bain, 2008. "American and European Financial Shocks: Implications for Chinese Economic Performance," ANU Working Papers in Economics and Econometrics, Australian National University, College of Business and Economics, School of Economics 2008-491, Australian National University, College of Business and Economics, School of Economics.
  6. Rod Tyers, 2014. "Analysing the Short Run Effects of China’s Economic Reform Agenda," CAMA Working Papers 2014-29, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  7. Rod TYERS, 2013. "China and Global Macroeconomic Interdependence," CAMA Working Papers 2013-34, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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