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‘Currency manipulation’ and world trade

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  • STAIGER, ROBERT W.
  • SYKES, ALAN O.

Abstract

Central bank intervention in foreign exchange markets may, under some conditions, stimulate exports and retard imports. In the past few years, this issue has moved to center stage because of the foreign exchange policies of China. China has regularly intervened to prevent the RMB from appreciating relative to other currencies, and over the same period has developed large global and bilateral trade surpluses. Numerous public officials and commentators argue that China has engaged in impermissible "currency manipulation," and various proposals for stiff action against China have been advanced. This paper clarifies the theoretical relationship between exchange rate policy and international trade, and addresses the question of what content can be given to the concept of "currency manipulation" as a measure that may impair the commitments made in trade agreements. Our conclusions are at odds with much of what is currently being said by proponents of counter-measures against China. For example, it is often asserted that China's currency policies have real effects that are equivalent to an export subsidy. In fact, however, if prices are flexible the effect of exchange rate intervention parallels that of a uniform import tariff and export subsidy, which will have no real effect on trade, an implication of Lerner's symmetry theorem. With sticky prices, the real effects of exchange rate intervention and the translation of that intervention into trade-policy equivalents depend critically on how traded goods and services are priced. The real effects of China's policies are potentially quite complex, are not readily translated into trade-policy equivalents, and are dependent on the time frame over which they are evaluated (because prices are less "sticky" over a longer time frame).
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Suggested Citation

  • Staiger, Robert W. & Sykes, Alan O., 2010. "‘Currency manipulation’ and world trade," World Trade Review, Cambridge University Press, vol. 9(04), pages 583-627, October.
  • Handle: RePEc:cup:wotrrv:v:9:y:2010:i:04:p:583-627_00
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    References listed on IDEAS

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    Cited by:

    1. Emmanuel Farhi & Gita Gopinath & Oleg Itskhoki, 2014. "Fiscal Devaluations," Review of Economic Studies, Oxford University Press, vol. 81(2), pages 725-760.
    2. ZhongXiang Zhang, 2012. "Who should bear the cost of China’s carbon emissions embodied in goods for exports?," Mineral Economics, Springer;Raw Materials Group (RMG);Luleå University of Technology, vol. 24(2), pages 103-117, June.
    3. Agnès Bénassy-Quéré & Matthieu Bussière & Pauline Wibaux, 2018. "Trade and currency weapons," Working Papers 2018-08, CEPII research center.
    4. Anton Korinek, 2016. "Currency Wars or Efficient Spillovers? A General Theory of International Policy Cooperation," NBER Working Papers 23004, National Bureau of Economic Research, Inc.
    5. repec:eee:inecon:v:113:y:2018:i:c:p:154-171 is not listed on IDEAS
    6. Anton Korinek, 2017. "Currency wars or efficient spillovers?," BIS Working Papers 615, Bank for International Settlements.
    7. Auboin, Marc & Ruta, Michel, 2011. "The relationship between exchange rates and International Trade: A review of economic literature," WTO Staff Working Papers ERSD-2011-17, World Trade Organization (WTO), Economic Research and Statistics Division.
    8. Jean-Christophe Bureau & Sébastien Jean, 2013. "Trade liberalization in the bio-economy: coping with a new landscape," Agricultural Economics, International Association of Agricultural Economists, vol. 44(s1), pages 173-182, November.
    9. Rachel McCulloch, 2010. "The International Trading System and Its Future," Working Papers 08, Brandeis University, Department of Economics and International Businesss School.
    10. Duo Qin & Xinhua He & Yimeng Liu, 2010. "Exchange Rate Misalignments: Historical Experience of Japan, Germany, Singapore and Taiwan Compared to China Today," Working Papers 667, Queen Mary University of London, School of Economics and Finance.
    11. Jean-Christophe Bureau & Sébastien Jean, 2013. "International Agricultural Trade and Negotiations : Coping with a New Landscape," FOODSECURE Working papers 8, LEI Wageningen UR.
    12. Xinhua He & Duo Qin & Yimeng Liu, 2012. "Exchange rate misalignments: a comparison of China today against recent historical experiences of Japan, Germany, Singapore and Taiwan," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 10(3), pages 247-266, May.
    13. Juan Marchetti & Michele Ruta & Robert Teh, 2012. "Trade Imbalances and Multilateral Trade Cooperation," CESifo Working Paper Series 4050, CESifo Group Munich.
    14. Aleh Mazol, 2015. "Exchange Rate, Imports of Intermediate and Capital Goods and GDP Growth in Belarus," BEROC Working Paper Series 32, Belarusian Economic Research and Outreach Center (BEROC).
    15. repec:eee:chieco:v:46:y:2017:i:c:p:87-96 is not listed on IDEAS
    16. repec:bla:apacel:v:31:y:2017:i:1:p:39-52 is not listed on IDEAS
    17. Arnaud Costinot & Iván Werning, 2017. "The Lerner Symmetry Theorem: Generalizations and Qualifications," NBER Working Papers 23427, National Bureau of Economic Research, Inc.
    18. Ramirez, Carlos D., 2013. "The political economy of “currency manipulation” bashing," China Economic Review, Elsevier, vol. 27(C), pages 227-237.
    19. Fitzgerald, Doireann & Haller, Stefanie, 2018. "Exporters and shocks," Journal of International Economics, Elsevier, vol. 113(C), pages 154-171.
    20. Alessandro Nicita, 2013. "Exchange rates, international trade and trade policies," International Economics, CEPII research center, issue 135-136, pages 47-61.
    21. Salamat Ali, 2017. "Exchange Rate Effects on Agricultural Exports: Firm-level Evidence from Pakistan," Discussion Papers 2017-09, University of Nottingham, GEP.

    More about this item

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law

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