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  • Tao Wang
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    Abstract

    This paper reviews the evolution of China''s real effective exchange rate between 1980 and 2002, and uses a structural vector autoregression model to study the relative importance of different types of macroeconomic shocks for fluctuations in the real exchange rate. The structural decomposition shows that relative real demand and supply shocks account for most of the variations in real exchange rate changes during the estimation period. The paper also finds that supply shocks are as important as nominal shocks in accounting for real exchange rate fluctuations, in contrast with other studies that show that, in industrial countries, nominal shocks are more important in explaining real exchange rate fluctuations.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/18.

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    Length: 23
    Date of creation: 01 Feb 2004
    Date of revision:
    Handle: RePEc:imf:imfwpa:04/18

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    Related research

    Keywords: Real effective exchange rates; exchange rate; real exchange rate; effective exchange rate; real effective exchange rate; exchange rate fluctuations; exchange rate movements; fixed exchange rate; exchange rates; real exchange rate fluctuations; exchange rate system; foreign exchange; nominal exchange rate; exchange rate regime; partner countries; real exchange rate movements; open economy; real exchange rates; exchange rate regimes; equilibrium exchange rate; export prices; output growth; exchange rate arrangement; producer price index; aggregate demand; real exchange rate changes; fixed exchange rate system; flexible exchange rate; exchange rate changes; export price; tradable goods; trade partner; nominal effective exchange rate; domestic goods; exchange rate variations; dual exchange rate; exchange rate movement; transition economies; political economy; endogenous growth; trading partners; floating exchange rate; exchange transactions; dynamic effects; international trade; export growth; exchange reserves; partial equilibrium; nominal exchange rates; exchange rate systems; trade partners; exchange markets; market orientation; fixed exchange rate regimes; foreign exchange retention; real exchange rate misalignment; exchange rate misalignment; foreign exchange reserves; flexible exchange rate systems; external shocks; balance of payments; domestic price; real exchange rate movement; foreign exchange transactions; foreign trade; fixed exchange rate regime; floating exchange rate system; trade barriers; exchange retention; floating exchange rates;

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    References

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    1. Matthew B. Canzoneri & Javier Vallés & José Viñals, 1996. "Do Exchange Rate Move to Address International Macroeconomic Imbalances?," Banco de Espa�a Working Papers 9626, Banco de Espa�a.
    2. Martin Eichenbaum & Charles L. Evans, 1993. "Some Empirical Evidence on the Effects of Monetary Policy Shocks on Exchange Rates," NBER Working Papers 4271, National Bureau of Economic Research, Inc.
    3. Dibooglu, Selahattin & Kutan, Ali M., 2001. "Sources of Real Exchange Rate Fluctuations in Transition Economies: The Case of Poland and Hungary," Journal of Comparative Economics, Elsevier, vol. 29(2), pages 257-275, June.
    4. Tamim Bayoumi and Barry Eichengreen., 1992. "Macroeconomic Adjustment Under Bretton Woods and the Post-Bretton-Woods Float: An Impulse- Response Analysis," Economics Working Papers 92-201, University of California at Berkeley.
    5. Taimur Baig & Jörg Decressin & Tarhan Feyzioglu & Manmohan S. Kumar & Chris Faulkner-MacDonagh, 2003. "Deflation," IMF Occasional Papers 221, International Monetary Fund.
    6. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers 497, Massachusetts Institute of Technology (MIT), Department of Economics.
    7. Bankim Chadha & Eswar Prasad, 1997. "Real Exchange Rate Fluctuations and the Business Cycle: Evidence from Japan," IMF Staff Papers, Palgrave Macmillan, vol. 44(3), pages 328-355, September.
    8. Alun H. Thomas, 1997. "Is the Exchange Rate a Shock Absorber? the Case of Sweden," IMF Working Papers 97/176, International Monetary Fund.
    9. Zhang, Zhichao, 2001. "Real Exchange Rate Misalignment in China: An Empirical Investigation," Journal of Comparative Economics, Elsevier, vol. 29(1), pages 80-94, March.
    10. Agenor, Pierre-Richard & McDermott, C John & Prasad, Eswar S, 2000. "Macroeconomic Fluctuations in Developing Countries: Some Stylized Facts," World Bank Economic Review, World Bank Group, vol. 14(2), pages 251-85, May.
    11. Richard Clarida & Jordi Gali, 1994. "Sources of real exchange rate fluctuations: how important are nominal shocks?," Proceedings, Federal Reserve Bank of Dallas, issue Apr.
    12. Chou, W. L. & Shih, Y. C., 1998. "The Equilibrium Exchange Rate of the Chinese Renminbi," Journal of Comparative Economics, Elsevier, vol. 26(1), pages 165-174, March.
    13. Ahmed, Shaghil, 2003. "Sources of economic fluctuations in Latin America and implications for choice of exchange rate regimes," Journal of Development Economics, Elsevier, vol. 72(1), pages 181-202, October.
    14. Hoffmaister, Alexander W. & Roldos, Jorge E., 2001. "The Sources of Macroeconomic Fluctuations in Developing Countries: Brazil and Korea," Journal of Macroeconomics, Elsevier, vol. 23(2), pages 213-239, April.
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    Cited by:
    1. Abdalrahman AbuDalu & Elsadig Musa Ahmed, 2013. "The long and short run forcing variables of purchasing power parity of ASEAN-5," E3 Journal of Business Management and Economics., E3 Journals, vol. 4(3), pages 066-081.
    2. Katie Farrant & Gert Peersman, 2005. "Accounting for the source of exchange rate movements: new evidence," Bank of England working papers 269, Bank of England.
    3. Oikonomou, Vlasis & Patel, Martin & Worrell, Ernst, 2006. "Climate policy: Bucket or drainer?," Energy Policy, Elsevier, vol. 34(18), pages 3656-3668, December.
    4. Dupuy, Philippe & Carlotti, Jean-Etienne, 2010. "The Optimal Path of the Chinese Renminbi," MPRA Paper 26107, University Library of Munich, Germany.
    5. Sfia, Mohamed Daly, 2006. "Tunisia: Sources Of Real Exchange Rate Fluctuations," MPRA Paper 3129, University Library of Munich, Germany.
    6. Zhang, Jian & Fung, Hung-Gay, 2006. "Winners and losers: Assessing the impact of Chinese Yuan appreciation," Journal of Policy Modeling, Elsevier, vol. 28(9), pages 995-1009, December.

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