China's Exchange Rate Appreciation in the Light of the Earlier Japanese Experience
AbstractFor creditor countries on the periphery of the dollar standard such as China with current account surpluses, foreign mercantile pressure to appreciate their currencies and become more flexible is misplaced. Just the expectation of variable exchange appreciation seriously disrupts the natural tendency for wage growth to balance productivity growth and thus worsens the (incipient) deflation that China now faces. It could create a zero-interest liquidity trap in financial markets that leaves the central bank helpless to combat future deflation arising out of actual currency appreciation, as with the earlier experience of Japan. Exchange rate appreciation, or the threat of it, causes macroeconomic distress without having any predictable effect on the trade surpluses of creditor economies. --
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Bibliographic InfoPaper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 06-35.
Date of creation: 2006
Date of revision:
exchange rate; current account; China; Japan;
Find related papers by JEL classification:
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-02-17 (All new papers)
- NEP-CBA-2007-02-17 (Central Banking)
- NEP-CNA-2007-02-17 (China)
- NEP-DEV-2007-02-17 (Development)
- NEP-IFN-2007-02-17 (International Finance)
- NEP-SEA-2007-02-17 (South East Asia)
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