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Exchange-rate effects on China's trade: an interim report

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  • Jaime Marquez
  • John W. Schindler
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    Abstract

    Though China's share of world trade is comparable to that of Japan, little is known about the response of China's trade to changes in exchange rates. The few estimates available suffer from two limitations. First, the data for trade prices are based on proxies for prices from other countries. Second, the estimation sample includes the period of China's transformation from a centrally-planned economy to a market-oriented system. To address these limitations, this paper develops an empirical model explaining the shares of China's exports and imports in world trade in terms of the real effective value of the renminbi. The specifications control for foreign direct investment and for the role of imports of parts to assemble merchandise exports. Parameter estimation uses disaggregated monthly trade data and excludes the period during which most of China's decentralization occurred. The estimation results suggest that a ten-percent real appreciation of the renminbi lowers the share of aggregate Chinese exports by a half of a percentage point. The same appreciation lowers the share of aggregate imports by about a tenth of a percentage point.

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    Bibliographic Info

    Article provided by Federal Reserve Bank of San Francisco in its journal Proceedings.

    Volume (Year): (2006)
    Issue (Month): Jun ()
    Pages:

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    Handle: RePEc:fip:fedfpr:y:2006:i:jun:x:5

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    1. Willem THORBECKE, 2006. "The Effect of Exchange Rate Changes on Trade in East Asia," Discussion papers 06009, Research Institute of Economy, Trade and Industry (RIETI).
    2. Deborah L. Swenson, 2004. "Foreign Investment and the Mediation of Trade Flows," Review of International Economics, Wiley Blackwell, vol. 12(4), pages 609-629, 09.
    3. Koichiro Kamada & Izumi Takagawa, 2005. "Policy coordination in East Asia and across the Pacific," International Economics and Economic Policy, Springer, vol. 2(4), pages 275-306, December.
    4. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier.
    5. Cerra, Valerie & Saxena, Sweta Chaman, 2003. "How responsive is Chinese export supply to market signals?," China Economic Review, Elsevier, vol. 14(3), pages 350-370.
    6. Anuradha Dayal-Gulati & Valerie Cerra, 1999. "China's Trade Flows," IMF Working Papers 99/1, International Monetary Fund.
    7. Vanessa Rossi, 2005. "Is revaluation of the renminbi good news?," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 6(3), pages 29-36, 06.
    8. Bayoumi, Tamim & Jayanthi, Sarma & Lee, Jaewoo, 2006. "New Rates from New Weights," CEPR Discussion Papers 5860, C.E.P.R. Discussion Papers.
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    Cited by:
    1. Li Wang & John Whalley, 2007. "The Impacts of Renminbi Appreciation on Trades Flows and Reserve Accumulation in a Monetary Trade Model," NBER Working Papers 13586, National Bureau of Economic Research, Inc.
    2. Robert Lafrance, 2008. "China's Exchange Rate Policy: A Survey of the Literature," Discussion Papers 08-5, Bank of Canada.
    3. Alicia GarcĂ­a-Herrero & Tuuli Koivu, 2009. "China's exchange rate policy and Asian trade," BIS Working Papers 282, Bank for International Settlements.
    4. Garcia-Herrero, Alicia & Koivu, Tuuli, 2007. "Can the Chinese trade surplus be reduced through exchange rate policy?," BOFIT Discussion Papers 6/2007, Bank of Finland, Institute for Economies in Transition.
    5. Mizanur RAHMAN & Willem THORBECKE, 2007. "How Would China's Exports be Affected by a Unilateral Appreciation of the RMB and a Joint Appreciation of Countries Supplying Intermediate Imports?," Discussion papers 07012, Research Institute of Economy, Trade and Industry (RIETI).

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