Advanced Search
MyIDEAS: Login to save this paper or follow this series

China'S Real Exchange Rate Puzzle

Contents:

Author Info

  • Rod Tyers

    ()

  • Jane Golley

    ()

  • Iain Bain

    ()

Abstract

International pressure to revalue China’s currency stems in part from the expectation that rapid economic growth should be associated with a real exchange rate appreciation. This hinges on the Balassa-Samuelson hypothesis under which economic growth, stemming from improvements in traded sector productivity, causes non-traded prices to rise. The puzzle is that, while evidence on China’s productivity and prices supports this hypothesis, its real exchange rate has shown no long run tendency to appreciate. Resolution requires extension of the hypothesis to allow for effects on the real exchange rate due to non-traded productivity improvements or, in association with failures of the law of one price for traded goods, labour supply growth and growth-related demand switches due to changes in financial capital flows and trade distortions. The sensitivity of China’s real exchange rate to these determinants is reviewed with the results confirming that financial and capital outflows are dominant depreciating forces in the short run. Along with WTO accession trade reforms, it is shown that the heretofore rising surplus of Chinese domestic saving over its investment has restrained the real exchange rate from appreciating since the late 1990s.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. 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://cbe.anu.edu.au/research/papers/camawpapers/Papers/2007/Tyers_Golley_Bain_142007.pdf
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Cama Admin)
Download Restriction: no

Bibliographic Info

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2007-14.

as in new window
Length: 30 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:een:camaaa:2007-14

Contact details of provider:
Postal: Crawford Building, Lennox Crossing, Building #132, Canberra ACT 0200
Phone: +61 2 6125 4705
Fax: +61 2 6125 5448
Email:
Web page: http://cama.crawford.anu.edu.au
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

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.:
as in new window
  1. Mario J. Crucini & Chris I. Telmer & Marios Zachariadis, 2001. "Understanding European Real Exchange Rates," Vanderbilt University Department of Economics Working Papers, Vanderbilt University Department of Economics 0120, Vanderbilt University Department of Economics.
  2. Rod Tyers & Iain Bain & Yongxiang Bu, 2008. "China'S Equilibrium Real Exchange Rate: A Counterfactual Analysis," Pacific Economic Review, Wiley Blackwell, Wiley Blackwell, vol. 13(1), pages 17-39, 02.
  3. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 72, pages 584.
  4. Rod Tyers & Jane Golley, 2006. "China's Growth to 2030: Demographic Change and the Labour Supply Constraint," PGDA Working Papers, Program on the Global Demography of Aging 1106, Program on the Global Demography of Aging.
  5. Carsten A Holz, 2005. "New Capital Estimates for China," Macroeconomics, EconWPA 0512001, EconWPA.
  6. 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.
  7. Virginie Coudert & Cécile Couharde, 2005. "Real Equilibrium Exchange Rate in China," Working Papers, CEPII research center 2005-01, CEPII research center.
  8. Bergin, Paul R. & Glick, Reuven & Taylor, Alan M., 2006. "Productivity, tradability, and the long-run price puzzle," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(8), pages 2041-2066, November.
  9. 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, Australian National University, College of Business and Economics, School of Economics 2006-476, Australian National University, College of Business and Economics, School of Economics.
  10. Rees, Lucy & Tyers, Rod, 2004. "Trade reform in the short run: China's WTO accession," Journal of Asian Economics, Elsevier, Elsevier, vol. 15(1), pages 1-31, February.
  11. Imed Drine & Christophe Rault, 2005. "Can the Balassa-Samuelson theory explain long-run real exchange rate movements in OECD countries?," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 15(8), pages 519-530.
  12. Ken Miyajima, 2005. "Real Exchange Rates in Growing Economies," IMF Working Papers, International Monetary Fund 05/233, International Monetary Fund.
  13. Rod Tyers & Iain Bain & Jahnvi Vedi, 2007. "The Global Economic Implications of Freer Skilled Migration," DEGIT Conference Papers, DEGIT, Dynamics, Economic Growth, and International Trade c012_028, DEGIT, Dynamics, Economic Growth, and International Trade.
  14. 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.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Rod Tyers & Ying Zhang, 2010. "Appreciating The Renminbi," Economics Discussion / Working Papers, The University of Western Australia, Department of Economics 10-13, The University of Western Australia, Department of Economics.
  2. Steven Pennings & Rod Tyers, 2008. "Increasing Returns, Financial Capital Mobility and Real Exchange Rate Dynamics," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 84(s1), pages S141-S158, 09.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:een:camaaa:2007-14. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Cama Admin).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.