Are Currency Revaluations Contractionary in China?
AbstractChinese economy has been in a state of external imbalance and internal imbalance for some years, which certainly has something to do with the undervaluation of renminbi (RMB). But Chinese Government hesitates to revalue RMB because of the worry that RMB revaluations are contractionary thus have negative impact on China's economic growth and employment. The purpose of this paper is to empirically assess the effects of RMB real exchange rate on China's output. The econometric work of the paper shows that even after sources of spurious correlation and reverse causation are controlled for, RMB revaluation has led to a decline in Chinas output, suggesting that RMB revaluations do be contractionary. The paper gives some possible explanations to this finding, and points out that the finding does not consequentially imply that China should continue maintaining the undervaluation of RMB.
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Bibliographic InfoPaper provided by East Asian Bureau of Economic Research in its series Macroeconomics Working Papers with number 22712.
Date of creation: Jan 2006
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renminbi; exchange rate misalignment; contractionary devaluation; VAR model;
Find related papers by JEL classification:
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
- O24 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
- P21 - Economic Systems - - Socialist Systems and Transition Economies - - - Planning, Coordination, and Reform
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