China s Exchange Rate Policy and Asian Trade
AbstractThis paper shows empirically that Chinaâ€™s trade balance is sensitive to fluctuations in the renminbi real effective exchange rate. However, the current size of the trade surplus is such that exchange rate policy, alone, will probably not be able to address the imbalance. The reduction in the trade surplus is limited mainly because Chinese imports do not react as expected to exchange rate appreciation. In fact, they tend to fall rather than increase. By estimating bilateral import equations for China and its major trading partners, we find that such reaction of imports to exchange rate appreciation is generally confirmed for South-East Asian countries but not for others. This might be a direct consequence of Asiaâ€™s vertical integration as a large share of Chinese imports from Southeast Asia is directed to reexporting. We also find that the total exports from a number of Asian countries react negatively to a renminbi appreciation, which points to a dependence of Asian countriesâ€™ exports on those of China.
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Bibliographic InfoPaper provided by BBVA Bank, Economic Research Department in its series Working Papers with number 0916.
Length: 38 pages
Date of creation: Jul 2009
Date of revision:
China; trade; exports; real exchange rate;
Find related papers by JEL classification:
- F1 - International Economics - - Trade
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-11 (All new papers)
- NEP-SEA-2010-04-11 (South East Asia)
- NEP-TRA-2010-04-11 (Transition Economics)
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- Zhang, Chenying, 2010. "Sterilization in China: Effectiveness and Cost," Working Papers 10-29, University of Pennsylvania, Wharton School, Weiss Center.
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