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Would Currency Appreciation Reduce the Trade Surplus?

Author

Listed:
  • Dongzhou Mei

    (School of International Trade and Economics, Central University of Finance and Economics)

  • Ting Ji

    (School of International Trade and Economics, Central University of Finance and Economics)

  • Liutang Gong

    (Guanghua School of Management, Peking University)

Abstract

We build a small open economy model with the financial accelerator mech- anism to investigate how currency appreciation affects trade imbalances. Con- trary to speculation that currency appreciation significantly reduces trade sur- pluses, our analysis suggests that currency appreciation would lead to a further trade surplus increase and a reduction in output for countries holding a large amount of foreign assets and importing a high proportion of non-consumption goods, such as China.

Suggested Citation

  • Dongzhou Mei & Ting Ji & Liutang Gong, 2020. "Would Currency Appreciation Reduce the Trade Surplus?," Annals of Economics and Finance, Society for AEF, vol. 21(1), pages 85-110, May.
    • Handle: RePEc:cuf:journl:y:2020:v:21:i:1:meijigong
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    References listed on IDEAS

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    More about this item

    Keywords

    Currency appreciation; Trade surplus; Financial accelerator;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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