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The impacts of Renminbi appreciation on trade flows and reserve accumulation in a monetary trade model

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  • Whalley, John
  • Wang, Li

Abstract

Given the rapidly growing reserves in Asia (China, Japan, Korea, and Taiwan) and the pressures from trading partners to revalue, there is a need to examine commercial policy in more than a pure barter model. Here we evaluate the joint impacts of exchange rate appreciation on trade flows and country surpluses using a general equilibrium trade model with a simple monetary structure in which the trade surplus is endogenously determined in the exchange rate setting country and the exchange rate is exogenous. We illustrate its application to the Chinese case using calibration to 2005 data. Our results, while elasticity dependent, suggest that the impacts of Renminbi (RMB) revaluation on the surplus are proportionally larger than on trade flows, and that changes in trade flows can be substantial. Different treatments of China's processing trade have small impact on changes in China's trade flow under RMB appreciation, but significant impacts on the change in the surplus. Results are elasticity dependent; larger substitution elasticities in preferences yield larger effects on trade flows and the surplus.

Suggested Citation

  • Whalley, John & Wang, Li, 2011. "The impacts of Renminbi appreciation on trade flows and reserve accumulation in a monetary trade model," Economic Modelling, Elsevier, vol. 28(1), pages 614-621.
  • Handle: RePEc:eee:ecmode:v:28:y:2011:i:1:p:614-621
    DOI: 10.1016/j.econmod.2010.06.010
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    References listed on IDEAS

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    2. Koichiro Kamada & Izumi Takagawa, 2005. "Policy coordination in East Asia and across the Pacific," International Economics and Economic Policy, Springer, vol. 2(4), pages 275-306, December.
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    Citations

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    Cited by:

    1. Kang, Wensheng & Ratti, Ronald A. & Vespignani, Joaquin L., 2016. "The implications of liquidity expansion in China for the US dollar," Globalization and Monetary Policy Institute Working Paper 264, Federal Reserve Bank of Dallas.
    2. Nidal Rashid Sabri & Marga Peeters & Diama K. Abulaban, 2012. "The impact of exchange rate volatility on trade integration among North and South Mediterranean countries," International Journal of Business and Globalisation, Inderscience Enterprises Ltd, vol. 9(2), pages 107-121.
    3. Dong, Yan & Whalley, John, 2012. "Gains and losses from potential bilateral US–China trade retaliation," Economic Modelling, Elsevier, vol. 29(6), pages 2226-2236.
    4. Li, Aijun & Zhang, Aizhen, 2012. "Will carbon motivated border tax adjustments function as a threat?," Energy Policy, Elsevier, vol. 47(C), pages 81-90.
    5. Vespignani, Joaquin L. & Ratti, Ronald A., 2016. "Not all international monetary shocks are alike for the Japanese economy," Economic Modelling, Elsevier, vol. 52(PB), pages 822-837.
    6. Luo, Ji & Williams, Gary W., 2015. "The Impacts of Chinese Exchange Rate Policy on World Soybean and Products Markets," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205075, Agricultural and Applied Economics Association;Western Agricultural Economics Association.
    7. John Whalley, 2012. "External Sector Rebalancing and Endogenous Trade Imbalance Models," Contemporary Economics, University of Finance and Management in Warsaw, vol. 6(4), December.

    More about this item

    Keywords

    Renminbi appreciation; Monetary trade model; China's surplus;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F3 - International Economics - - International Finance
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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