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Exchange rate reform and its inflationary consequences: an empirical analysis for China

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Author Info
Maozu Lu
Zhichao Zhang

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Abstract

In examining China's exchange rate policy in the reforming years, the study finds empirical evidence of its long-run inflationary consequences, but the effects appear not to be sizable. In the short run, while changes in the devaluation rate are positively correlated with the increase in the growth rate of inflation, the inflation inertia is also modest. The moderate inflationary cost of devaluations provides some explanation of the smooth transition of exchange rate policy regime in China and the authorities' ability to put more weight on external competitiveness.

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Article provided by Taylor and Francis Journals in its journal Applied Economics.

Volume (Year): 35 (2003)
Issue (Month): 2 (January)
Pages: 189-199
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Handle: RePEc:taf:applec:v:35:y:2003:i:2:p:189-199

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Gross, Dominique M. & Schmitt, Nicolas, 2000. "Exchange rate pass-through and dynamic oligopoly: an empirical investigation," Journal of International Economics, Elsevier, vol. 52(1), pages 89-112, October. [Downloadable!] (restricted)
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  2. Papell, David H, 1994. "Exchange Rates and Prices: An Empirical Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 397-410, May. [Downloadable!] (restricted)
  3. Younger, Stephen D, 1992. "Testing the Link between Devaluation and Inflation: Time Series Evidence from Ghana," Journal of African Economies, Oxford University Press, vol. 1(3), pages 369-94, November.
  4. Rudiger Dornbusch & Stanley Fischer, 1986. "The Open Economy: Implications for Monetary and Fiscal Policy," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages 459-516 National Bureau of Economic Research, Inc. [Downloadable!]
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  5. Manning, Linda M & Andrianacos, Dimitri, 1993. "Dollar Movements and Inflation: A Cointegration Analysis," Applied Economics, Taylor and Francis Journals, vol. 25(12), pages 1483-88, December.
  6. Dwyer, Jacqueline & Lam, Ricky, 1995. "The Two Stages of Exchange Rate Pass-Through: Implications for Inflation," Australian Economic Papers, Blackwell Publishing, vol. 34(65), pages 157-79, December.
  7. Lu, M. & Zhang, Z., 1998. "Parallel Exchange Market as a Transition Mechanism for Foreign Exchange Reform: China's Experiment," Discussion Paper Series In Economics And Econometrics 9807, Economics Division, School of Social Sciences, University of Southampton.
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  8. Balakrishnan, Pulapre, 1994. "How best to model inflation in India," Journal of Policy Modeling, Elsevier, vol. 16(6), pages 677-683, December. [Downloadable!] (restricted)
  9. Menon, Jayant, 1995. " Exchange Rate Pass-Through," Journal of Economic Surveys, Blackwell Publishing, vol. 9(2), pages 197-231, June.
  10. Zhang, Zhichao, 2001. " China's Exchange Rate Reform and Exports," Economic Change and Restructuring, Springer, vol. 34(1-2), pages 89-112. [Downloadable!] (restricted)
  11. Phylaktis, Kate & Girardin, Eric, 2001. "Foreign exchange markets in transition economies: China," Journal of Development Economics, Elsevier, vol. 64(1), pages 215-235, February. [Downloadable!] (restricted)
  12. Feenstra, Robert C. & Gagnon, Joseph E. & Knetter, Michael M., 1996. "Market share and exchange rate pass-through in world automobile trade," Journal of International Economics, Elsevier, vol. 40(1-2), pages 187-207, February. [Downloadable!] (restricted)
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  13. Clark Leith, J., 1991. "The exchange rate and the price level in a small open economy: Botswana," Journal of Policy Modeling, Elsevier, vol. 13(2), pages 309-315. [Downloadable!] (restricted)
  14. Peter Hooper & Barbara R. Lowrey, 1979. "Impact of the dollar depreciation on the U.S. price level: an analytical survey of empirical estimates," Staff Studies 103, Board of Governors of the Federal Reserve System (U.S.).
  15. Peter Hooper & Barbara Lowrey, 1979. "Impact of the dollar depreciation on the U.S. price level: an analytical survey of empirical estimates," International Finance Discussion Papers 128, Board of Governors of the Federal Reserve System (U.S.).
  16. Zhichao Zhang, 2000. "Exchange Rate Reform in China: An Experiment in the Real Targets Approach," The World Economy, Blackwell Publishing, vol. 23(8), pages 1057-1081, 08. [Downloadable!] (restricted)
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Cited by:
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  1. Paresh Kumar Narayan & Russell Smyth, 2006. "The dynamic relationship between real exchange rates, real interest rates and foreign exchange reserves: empirical evidence from China," Applied Financial Economics, Taylor and Francis Journals, vol. 16(9), pages 639-651, June. [Downloadable!] (restricted)
  2. Paresh Kumar Narayan & Russell Smyth, 2004. "The relationship between the real exchange rate and balance of payments: empirical evidence for China from cointegration and causality testing," Applied Economics Letters, Taylor and Francis Journals, vol. 11(5), pages 287-291, April. [Downloadable!] (restricted)
  3. Joerg Scheibe & David Vines, 2005. "A Phillips Curve For China," CAMA Working Papers 2005-02, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
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