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American and European Financial Shocks: Implications for Chinese Economic Performance

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  • Rod Tyers

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  • Iain Bain

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Abstract

With exports almost half of its GDP and most of these directed to Europe and North America, negative financial shocks in those regions might be expected to retard China's growth. Yet mitigating factors include the temporary flight of North American and European savings into Chinese investment and some associated real exchange rate realignments. These issues are explored using a dynamic model of the global economy. A rise in American and European financial intermediation costs is shown to retard neither China's GDP nor its import growth in the short run. Should the Chinese government act to prevent the effects of the investment surge, through tighter inward capital controls or increased reserve accumulation, the associated losses would be compensated by a trade advantage since its real exchange rate would appreciate less against North America than those of other trading partners. The results therefore suggest that, so long as the financial shocks are restricted to North America and Western Europe, China's growth and the imports on which its trading partners rely are unlikely to be significantly hindered.

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Bibliographic Info

Paper provided by Australian National University, College of Business and Economics, School of Economics in its series ANU Working Papers in Economics and Econometrics with number 2008-491.

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Length: 27 pages
Date of creation: Apr 2008
Date of revision:
Handle: RePEc:acb:cbeeco:2008-491

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References

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  1. Rod Tyers & Ying Zhang, 2010. "Appreciating the Renminbi," CAMA Working Papers 2010-30, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Rod Tyers & Jane Golley & Bu Yongxiang & Ian Bain, 2006. "China's Economic Growth and its Real Exchange Rate," ANU Working Papers in Economics and Econometrics 2006-476, Australian National University, College of Business and Economics, School of Economics.
  3. Rod Tyers & Jane Golley, 2007. "China’s Real Exchange Rate," ANU Working Papers in Economics and Econometrics 2007-479, Australian National University, College of Business and Economics, School of Economics.
  4. McKinnon, Ronald, 2006. "China's Exchange Rate Appreciation in the Light of the Earlier Japanese Experience," ZEW Discussion Papers 06-35, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. Ianchovichina, Elena & Robert McDougall, 2000. "Theoretical Structure of Dynamic GTAP," GTAP Technical Papers 480, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  6. Rod Tyers & Iain Bain & Yongxiang Bu, 2008. "China'S Equilibrium Real Exchange Rate: A Counterfactual Analysis," Pacific Economic Review, Wiley Blackwell, vol. 13(1), pages 17-39, 02.
  7. Liu, Jing & Nico van Leeuwen & Tri Thanh Vo & Rod Tyers & Thomas W. Hertel, 1998. "Disaggregating Labor Payments by Skill Level in GTAP," GTAP Technical Papers 314, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  8. Kenneth Rogoff & William Brainard & George Perry, . "Global Current Account Imbalances and Exchange Rate Adjustments," Working Paper 33687, Harvard University OpenScholar.
  9. Sebastian Edwards, 2005. "Is the U.S. Current Account Deficit Sustainable? If Not, How Costly Is Adjustment Likely to Be?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 211-288.
  10. Eichengreen, Barry, 2006. "Global imbalances: The new economy, the dark matter, the savvy investor, and the standard analysis," Journal of Policy Modeling, Elsevier, vol. 28(6), pages 645-652, September.
  11. Paul Krugman, 2007. "Will there be a dollar crisis?," Economic Policy, CEPR & CES & MSH, vol. 22, pages 435-467, 07.
  12. Ronald McKinnon, 2006. "China'S Exchange Rate Appreciation In The Light Of The Earlier Japanese Experience," Pacific Economic Review, Wiley Blackwell, vol. 11(3), pages 287-298, October.
  13. Tung, Chen-Yuan & Baker, Sam, 2004. "RMB revaluation will serve China's self-interest," China Economic Review, Elsevier, vol. 15(3), pages 331-335.
  14. Rod Tyers & Jane Golley, 2006. "China's Growth to 2030: Demographic Change and the Labour Supply Constraint," PGDA Working Papers 1106, Program on the Global Demography of Aging.
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Cited by:
  1. 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.
  2. Jane Golley & Rod Tyers, 2012. "Demographic Dividends, Dependencies and Economic Growth in China and India," CAMA Working Papers 2012-06, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  3. Rod Tyers, 2012. "Japanese Economic Stagnation: Causes and Global Implications," The Economic Record, The Economic Society of Australia, vol. 88(283), pages 517-536, December.
  4. Jane Golley & Rod Tyers, 2011. "Contrasting Giants: Demographic Change and Economic Performance in China and India," Economics Discussion / Working Papers 11-04, The University of Western Australia, Department of Economics.
  5. Rod Tyers, 2012. "The Rise and Robustness of Economic Freedom in China," Economics Discussion / Working Papers 12-02, The University of Western Australia, Department of Economics.

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