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The RMB Debate: Empirical Analysis on the Effects of Exchange Rate Shocks in China and Japan

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  • Soyoung Kim

    (Seoul National University and Hong Kong Institute for Monetary Research)

  • Yoonbai Kim

    (University of Kentucky)

Abstract

For a better understanding of the ongoing debates on the RMB, this paper investigates the effects of exchange rate shocks on output and the current account for China and Japan. We use structural vector auto-regression models and find that yen appreciation reduces current account surpluses while having no strong effect on output in Japan. RMB appreciation, on the other hand, has an insignificant effect on the current account, although it tends to reduce output in China. For China, dollar pricing with vertical trade integration seems responsible for the insignificant effect on the current account.

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Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 132012.

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Length: 34 pages
Date of creation: May 2012
Date of revision:
Handle: RePEc:hkm:wpaper:132012

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Keywords: Renminbi Appreciation; Current Account Imbalance; VAR; Exchange Rate Shocks; Recession;

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