China’s Exchange Rate and International Adjustment in Wages, Prices, and Interest Rates: Japan Déjà Vu?
China keeps its exchange rate tightly fixed to the dollar. Its productivity growth and trade surplus have been high, and it continues to accumulate large dollar reserves. Many observers take this as evidence that the renminbi is undervalued and should be appreciated to reduce the Chinese trade surplus. We argue that an appreciation of the renminbi need not reduce China’s trade surplus but could cause serious deflation in China. To show this, we consider international adjustment between China and the United States from both an asset-market and a labor-market perspective, and compare this to Japan’s unsuccessful appreciation of the yen.
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- Gunther Schnabl & Christian Danne, 2005.
"The Changing Role of the Yen/Dollar Exchange Rate for Japanese Monetary Policy,"
- Schnabl, Gunther & Danne, Christian, 2005. "The Changing Role of the Yen/Dollar Exchange Rate for Japanese Monetary Policy," Tübinger Diskussionsbeiträge 290, University of Tübingen, School of Business and Economics.
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"The East Asian Dollar Standard, Fear of Floating, and Original Sin,"
03001, Stanford University, Department of Economics.
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- Jeffrey Frankel, 2006. "On the Yuan: The Choice between Adjustment under a Fixed Exchange Rate and Adjustment under a Flexible Rate," CESifo Economic Studies, CESifo, vol. 52(2), pages 246-275, June.
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