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China's Rapid Growth, Yuan Misalignment and Global Imbalances

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  • Tony Makin

Abstract

This paper develops a new international monetary framework for analysing the domestic and international repercussions of China’s exchange rate policy in the context of its rapid development. This straightforward framework reveals that misalignment of the yuan against major currencies artificially assists China’s output growth, contributes to global imbalances and limits household consumption, slowing the rise in living standards. Meanwhile, China’s Western trading partners, most notably the United States and the European Union, simultaneously experience external deficits, lower output and saving due to exchange rate misalignment.

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File URL: http://www.degit.ifw-kiel.de/papers/degit_12/C012_012.pdf
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Bibliographic Info

Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c012_012.

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Length: 24 pages JEL Classification: F32, F33, F43
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:deg:conpap:c012_012

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Related research

Keywords: output; expenditure; economic development; exchange rate misalignment; trading partners; global imbalances;

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  1. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear Of Floating," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 379-408, May.
  2. Ricardo Hausmann & Ugo Panizza & Ernesto H. Stein, 2000. "Why Do Countries Float the Way They Float?," Research Department Publications 4205, Inter-American Development Bank, Research Department.
  3. Aasim M. Husain & Ashoka Mody & Nienke Oomes & Robin Brooks & Kenneth Rogoff, 2003. "Evolution and Performance of Exchange Rate Regimes," IMF Working Papers 03/243, International Monetary Fund.
  4. Dornbusch, Rudiger & Fischer, Stanley, 1980. "Exchange Rates and the Current Account," American Economic Review, American Economic Association, vol. 70(5), pages 960-71, December.
  5. Mark P. Taylor, 1995. "The Economics of Exchange Rates," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 13-47, March.
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