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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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File URL: http://mpra.ub.uni-muenchen.de/920/
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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

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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  1. 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)
  2. Morris Goldstein, 2004. "Adjusting China's Exchange Rate Policies," Peterson Institute Working Paper Series WP04-1, Peterson Institute for International Economics. [Downloadable!]
  3. 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)
  4. 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)
  5. 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)
  6. 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)
  7. 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!]
  8. Funke, Michael & Rahn, Jörg, 2004. "Just how undervalued is the Chinese renminbi?," BOFIT Discussion Papers 14/2004, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
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  9. 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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