This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

China's Current Account and Exchange Rate

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Yin-Wong Cheung ()
Menzie D. Chinn ()
Eiji Fujii ()

Additional information is available for the following registered author(s):

Abstract

We examine whether the Chinese exchange rate is misaligned and how Chinese trade flows respond to the exchange rate and to economic activity. We find, first, that the Chinese currency, the renminbi (RMB), is substantially below the value predicted by estimates based upon a cross-country sample, when using the 2006 vintage of the World Development Indicators. The economic magnitude of the mis-alignment is substantial -- on the order of 50 percent in log terms. However, the misalignment is typically not statistically significant, in the sense of being more than two standard errors away from the conditional mean. Moreover, this finding disappears completely when using the most recent 2008 vintage of data; then the estimated undervaluation is on the order of 10 percent. Second, we find that Chinese multilateral trade flows respond to relative prices -- as represented by a trade weighted exchange rate -- but the relationship is not always precisely estimated. In addition, the direction of the effects is sometimes different from what is expected a priori. For instance, Chinese ordinary imports actually rise in response to a RMB depreciation; however, Chinese exports appear to respond to RMB depreciation in the expected manner, as long as a supply variable is included. In that sense, Chinese trade is not exceptional. Furthermore, Chinese trade with the United States appears to behave in a standard manner -- especially after the expansion in the Chinese manufacturing capital stock is accounted for. Thus, the China-US trade balance should respond to real exchange rate and relative income movements in the anticipated manner. However, in neither the case of multilateral nor bilateral trade flows should one expect quantitatively large effects arising from exchange rate changes. And, of course, these results are not informative with regard to the question of how a change in the RMB/USD exchange rate would affect the overall US trade deficit.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cesifo.de/DocCIDL/cesifo1_wp2587.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2587.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 2009
Date of revision:
Handle: RePEc:ces:ceswps:_2587

Contact details of provider:
Postal: Poschingerstrasse 5, 81679 Munich
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo.de

For technical questions regarding this item, or to correct its listing, contact: (Julio Saavedra).

Related research
Keywords:

Other versions of this item:

Find related papers by JEL classification:
F30 - International Economics - - International Finance - - - General
F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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. Jeffrey Frankel, 2006. "On the Yuan: The Choice between Adjustment under a Fixed Exchange Rate and Adjustment under a Flexible Rate," CESifo Economic Studies, Oxford University Press, vol. 52(2), pages 246-275, June. [Downloadable!] (restricted)
  2. Yin-Wong Cheung, 2005. "An Analysis Of Hong Kong Export Performance," Pacific Economic Review, Blackwell Publishing, vol. 10(3), pages 323-340, October. [Downloadable!] (restricted)
    Other versions:
  3. Hamid Faruqee & Peter Isard, 1998. "Exchange Rate Assessment: Extension of the Macroeconomic Balance Approach," IMF Occasional Papers 167, International Monetary Fund.
  4. Chinn, Menzie D. & Prasad, Eswar S., 2003. "Medium-term determinants of current accounts in industrial and developing countries: an empirical exploration," Journal of International Economics, Elsevier, vol. 59(1), pages 47-76, January. [Downloadable!] (restricted)
    Other versions:
  5. Valerie Cerra & Anuradha Dayal-Gulati, 1999. "China's Trade Flows-Changing Price Sensitivies and the Reform Process," IMF Working Papers 99/1, International Monetary Fund.
  6. Jose De Gregorio & Holger C. Wolf, 1994. "Terms of Trade, Productivity, and the Real Exchange Rate," NBER Working Papers 4807, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Steven Vincent Dunaway & Lamin Leigh & Xiangming Li, 2006. "How Robust are Estimates of Equilibrium Real Exchange Rates: The Case of China," IMF Working Papers 06/220, International Monetary Fund. [Downloadable!]
  8. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2007. "The Overvaluation of Renminbi Undervaluation," NBER Working Papers 12850, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Willem Thorbecke, 2006. "How Would an Appreciation of the Renminbi Affect the U.S. Trade Deficit with China?," Topics in Macroeconomics, Berkeley Electronic Press, vol. 6(3), pages 1454-1454. [Downloadable!] (restricted)
  10. Kwack, Sung Yeung & Ahn, Choong Y. & Lee, Young S. & Yang, Doo Y., 2007. "Consistent estimates of world trade elasticities and an application to the effects of Chinese Yuan (RMB) appreciation," Journal of Asian Economics, Elsevier, vol. 18(2), pages 314-330, April. [Downloadable!] (restricted)
  11. Virginie Coudert & Cecile Couharde, 2005. "Real Equilibrium Exchange Rate in China," Working Papers 2005-01, CEPII research center. [Downloadable!]
  12. Simon Johnson & Jonathan D. Ostry & Arvind Subramanian, 2007. "The Prospects for Sustained Growth in Africa: Benchmarking the Constraints," NBER Working Papers 13120, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  13. John W. Schindler & Dustin H. Beckett, 2005. "Adjusting Chinese bilateral trade data: how big is China's trade surplus," International Finance Discussion Papers 831, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  14. Hsieh, David A., 1982. "The determination of the real exchange rate : The productivity approach," Journal of International Economics, Elsevier, vol. 12(3-4), pages 355-362, May. [Downloadable!] (restricted)
  15. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584. [Downloadable!] (restricted)
  16. Alan Ahearne & John Fernald & Prakash Loungani & John Schindler, 2003. "China and emerging Asia: comrades or competitors?," Working Paper Series WP-03-27, Federal Reserve Bank of Chicago. [Downloadable!]
    Other versions:
  17. Chinn, Menzie D. & Ito, Hiro, 2007. "Current account balances, financial development and institutions: Assaying the world "saving glut"," Journal of International Money and Finance, Elsevier, vol. 26(4), pages 546-569, June. [Downloadable!] (restricted)
    Other versions:
  18. Menzie D. Chinn, 2005. "Supply Capacity, Vertical Specialization and Tariff Rates: The Implications for Aggregate U.S. Trade Flow Equations," NBER Working Papers 11719, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  19. Jeffrey A. Frankel & Shang-Jin Wei, 2007. "Assessing China's Exchange Rate Regime," NBER Working Papers 13100, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  20. Matthew B. Canzoneri & Robert E. Cumby & Behzad Diba, 1996. "Relative Labor Productivity and the Real Exchange Rate in the Long Run: Evidence for a Panel of OECD Countries," NBER Working Papers 5676, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  21. 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. [Downloadable!]
  22. Fernald, John & Edison, Hali & Loungani, Prakash, 1999. "Was China the first domino? Assessing links between China and other Asian economies," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 515-535, August. [Downloadable!] (restricted)
  23. Michael Funke & Jörg Rahn, 2005. "Just how Undervalued is the Chinese Renminbi," Quantitative Macroeconomics Working Papers 20504, Hamburg University, Department of Economics. [Downloadable!]
    Other versions:
  24. Fung, K. C. & Lau, Lawrence J., 2001. "New Estimates of the United States-China BilateralTrade Balances," Journal of the Japanese and International Economies, Elsevier, vol. 15(1), pages 102-130, March. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, 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. Kumakura, Masanaga & Kuroko, Masato, 2007. "China's Impact on the Exports of Other Asian Countries: A Note," IDE Discussion Papers 131, Institute of Developing Economies, Japan External Trade Organization(JETRO). [Downloadable!]
  2. THORBECKE, Willem, 2009. "Can East Asia be an Engine of Growth for the World Economy?," Discussion papers 09006, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
  3. THORBECKE, Willem & Hanjiang ZHANG, 2008. "The Effect of Exchange Rate Changes on China's Labor-Intensive Manufacturing Exports," Discussion papers 08038, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
    Other versions:
  4. Masanaga Kumakura & Masato Kuroko, 2008. "China's Impact on the Exports of Other Asian Countries: A Note," Economics Bulletin, Economics Bulletin, vol. 6(5), pages 1-15. [Downloadable!]
Statistics
Access and download statistics

Did you know? You can use convenient plug-ins to search directly IDEAS from your browser.

This page was last updated on 2009-11-3.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.