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China'S Exchange Rate Appreciation In The Light Of The Earlier Japanese Experience

  • Ronald McKinnon

For creditor countries such as China on the periphery of the dollar standard 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. Copyright 2006 The Author Journal compilation 2006 Blackwell Publishing Ltd

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Article provided by Wiley Blackwell in its journal Pacific Economic Review.

Volume (Year): 11 (2006)
Issue (Month): 3 (October)
Pages: 287-298

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Handle: RePEc:bla:pacecr:v:11:y:2006:i:3:p:287-298
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  1. Zhang, Xiaobo & Tan, Kong-Yam, 2004. "Blunt to sharpened razor," DSGD discussion papers 13, International Food Policy Research Institute (IFPRI).
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