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Structural Effects of a Real Exchange Rate Revaluation in China: A CGE Assessment

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Willenbockel, Dirk

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Abstract

The misalignment of the Chinese currency exposed by the rapid build-up of China’s foreign exchange reserves over the past few years has been the subject of considerable recent debate. Recent econometric studies suggest a Renminbi undervaluation on the order of 10 to 30%. The modest revaluation of July 2005 is widely perceived as insufficient to correct China’s balance-of-payments disequilibrium and has not silenced charges that China is engaging in persistent one-sided currency manipulation. Within China there are widespread concerns regarding the adverse employment effects of a major revaluation on labour-intensive export sectors, yet the likely magnitude of these effects remains a controversial issue. The paper aims to shed light on this question by simulating the structural effects of a real exchange rate revaluation that lowers the current account surplus-GDP by 4 percentage-points using a 17-sector computable general equilibrium model of the Chinese economy.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 920.

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Date of creation: Apr 2006
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Handle: RePEc:pra:mprapa:920

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Related research
Keywords: Renminbi undervaluation; real exchange rate misalignment; applied general equilibrium analysis;

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Find related papers by JEL classification:
F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models

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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.:
  1. Morris Goldstein, 2004. "Adjusting China's Exchange Rate Policies," Peterson Institute Working Paper Series WP04-1, Peterson Institute for International Economics. [Downloadable!]
  2. Zhang, Fan & Pan, Zuohong, 2004. "Determination of China's long-run nominal exchange rate and official intervention," China Economic Review, Elsevier, vol. 15(3), pages 360-365. [Downloadable!] (restricted)
  3. John Gilbert & Thomas Wahl, 2002. "Applied General Equilibrium Assessments of Trade Libereralisation in China," The World Economy, Blackwell Publishing, vol. 25(5), pages 697-731, 05. [Downloadable!] (restricted)
  4. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2003. "An Essay on the Revived Bretton Woods System," NBER Working Papers 9971, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Michael Funke & Jörg Rahn, 2005. "Just how Undervalued is the Chinese Renminbi," Quantitative Macroeconomics Working Papers 20504, Hamburg University, Department of Economics. [Downloadable!]
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  6. Sun, Huayu & Ma, Yue, 2005. "Policy strategies to deal with revaluation pressures on the renminbi," China Economic Review, Elsevier, vol. 16(2), pages 103-117. [Downloadable!] (restricted)
  7. Michael Dooley & Peter Garber, 2005. "Is It 1958 or 1968? Three Notes on the Longevity of the Revived Bretton Woods System," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(2005-1), pages 147-210. [Downloadable!]
  8. Zhang, Zhichao, 2001. "Real Exchange Rate Misalignment in China: An Empirical Investigation," Journal of Comparative Economics, Elsevier, vol. 29(1), pages 80-94, March. [Downloadable!] (restricted)
  9. Olivier Blanchard & Francesco Giavazzi, 2006. "Rebalancing Growth in China: A Three-Handed Approach," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 14(4), pages 1-20. [Downloadable!] (restricted)
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  10. Tung, Chen-Yuan & Baker, Sam, 2004. "RMB revaluation will serve China's self-interest," China Economic Review, Elsevier, vol. 15(3), pages 331-335. [Downloadable!] (restricted)
  11. Mark M. Spiegel, 2005. "A look at China's new exchange rate regime," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue Sep 9. [Downloadable!]
  12. Willenbockel, Dirk, 2004. "Specification choice and robustness in CGE trade policy analysis with imperfect competition," Economic Modelling, Elsevier, vol. 21(6), pages 1065-1099, December. [Downloadable!] (restricted)
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