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An Empirical Analysis of the Relationship between Chinese RMB Fluctuation and Overall Unemployment Rates in US

Author

Listed:
  • Ziran Li

    (Academy of Mathematics and Systems Science, Chinese Academy of Sciences, No. 55, Zhongguancun East Road, Haidian District, Beijing, 100190, China)

  • Qin Bao

    (Academy of Mathematics and Systems Science, Chinese Academy of Sciences, No. 55, Zhongguancun East Road, Haidian District, Beijing, 100190, China)

  • Shouyang Wang

    (Academy of Mathematics and Systems Science, Chinese Academy of Sciences, No. 55, Zhongguancun East Road, Haidian District, Beijing, 100190, China)

  • Siwei Cheng

    (Research Center on Fictitious Economy & Data Science, Chinese Academy of Sciences, No. 55, Zhongguancun East Road, Haidian District, Beijing, 100080, China)

Abstract

The relation between China's RMB exchange rate and US real economy has recently become a hotly debated issue among scholars, researchers, and policymakers. Using monthly data from Nov. 2001–Nov. 2010, this paper employs the cointegration test and VECM model to capture the relationships among the Chinese RMB exchange rate, US–China bilateral trade, and the US unemployment rate. Results indicate that the US unemployment rate is negatively correlated with the RMB exchange rate. Impulse response analysis discloses the transmission mechanism of RMB appreciation: an appreciation of the RMB leads to a drop in US–China bilateral trade, which associates with a slight rise in the US unemployment rate. A potential explanation for these unconventional results lie in the complementary industrial structures between the two countries. Some policy suggestions are made at the end.

Suggested Citation

  • Ziran Li & Qin Bao & Shouyang Wang & Siwei Cheng, 2013. "An Empirical Analysis of the Relationship between Chinese RMB Fluctuation and Overall Unemployment Rates in US," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 16(01), pages 1-18.
    • Handle: RePEc:wsi:rpbfmp:v:16:y:2013:i:01:n:s0219091513500069
    DOI: 10.1142/S0219091513500069
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    References listed on IDEAS

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    1. J. Bradford Jensen & Lori G. Kletzer, 2008. ""Fear" and Offshoring: The Scope and Potential Impact of Imports and Exports of Services," Policy Briefs PB08-1, Peterson Institute for International Economics.
    2. Naércio Aquino Menezes Filho & Marc-Andreas Muendler, 2007. "Labor Reallocation in Response to Trade Reform," CESifo Working Paper Series 1936, CESifo.
    3. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    4. J. Bradford Jensen, 2011. "Global Trade in Services: Fear, Facts, and Offshoring," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 6017, October.
    5. repec:zbw:bofitp:2007_006 is not listed on IDEAS
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    Cited by:

    1. Wing-Choong Lai & Kim-Leng Goh, 2019. "Impact of Chinese Yuan Devaluation on the Dependence Structure: The Archimedean Copula Approach," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 22(01), pages 1-27, March.
    2. Wing-Choong Lai & Kim-Leng Goh, 2021. "Dependence Structure Between Renminbi Movements and Volatility of Foreign Exchange Rate Returns," China Report, , vol. 57(1), pages 57-78, February.

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    More about this item

    Keywords

    RMB appreciation; US unemployment; VECM; impulse response; F16; F13; F59;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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