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An Empirical Study of the Impact of China's Export Tax Rebates on RMB Appreciation

Author

Listed:
  • Ma, Degong

    (Sichuan University)

  • Cho , Hyun-Jun

    (Konkuk University)

Abstract

While the issue of RMB (Renminbi, Chinese Yuan) revaluation became the focus of world attention in 2003, the reform of the RMB exchange rate regime in 2005 didn't fundamentally solve the RMB appreciation problem, and even in 2008 the global financial crisis made RMB appreciation face new challenges and risks. It appears that the rise in RMB value is caused by supply exceeding demand in China's foreign exchange market; however, intrinsically it is due to the asymmetry iWhile the issue of RMB (Renminbi, Chinese Yuan) revaluation became the focus of world attention in 2003, the reform of the RMB exchange rate regime in 2005 didn't fundamentally solve the RMB appreciation problem, and even in 2008 the global financial crisis made RMB appreciation face new challenges and risks. It appears that the rise in RMB value is caused by supply exceeding demand in China's foreign exchange market; however, intrinsically it is due to the asymmetry in RMB exchange rate formation mechanism. The export tax rebates policy implemented by Chinese government is one of the leading causes of the asymmetry. This study constructs a transmission model between export tax rebates and foreign exchange rates, and applies the Granger Test to validate the causality between kernel variables based on correlative data from 1994-2011, and uses the error correction method to analyze the quantified relations of kernel variables, and finally gets the contribution rate of export tax rebates to RMB appreciation.

Suggested Citation

  • Ma, Degong & Cho , Hyun-Jun, 2012. "An Empirical Study of the Impact of China's Export Tax Rebates on RMB Appreciation," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 16(3), pages 273-290, September.
    • Handle: RePEc:ris:eaerev:0071
    DOI: 10.11644/KIEP.JEAI.2012.16.3.251
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    Keywords

    Chinese Yuan; RMB; Export Tax Rebate; Exchange Rate; Asymmetry;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • P33 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

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