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Will an Appreciation of the Renminbi Rebalance the Global Economy? A Dynamic Financial CGE Analysis

Author

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  • Jingliang Xiao
  • Glyn Wittwer

Abstract

We use a dynamic CGE model of China with a financial module and sectoral detail to examine the real and nominal impacts of a nominal exchange rate appreciation alone, fiscal policy alone and a combined fiscal and monetary package to redress China's external imbalance. The exchange rate policy alone is ineffective in both the short run and long run at reducing China's current account surplus. Fiscal policy is less effective than a combination of fiscal and monetary policy in reducing the surplus.

Suggested Citation

  • Jingliang Xiao & Glyn Wittwer, 2009. "Will an Appreciation of the Renminbi Rebalance the Global Economy? A Dynamic Financial CGE Analysis," Centre of Policy Studies/IMPACT Centre Working Papers g-192, Victoria University, Centre of Policy Studies/IMPACT Centre.
    • Handle: RePEc:cop:wpaper:g-192
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    References listed on IDEAS

    as
    1. Lorenzo Cappiello & Gianluigi Ferrucci, 2008. "The sustainability of China's exchange rate policy and capital account liberalisation," Occasional Paper Series 82, European Central Bank.
    2. Horridge, Mark & Wittwer, Glyn, 2008. "SinoTERM, a multi-regional CGE model of China," China Economic Review, Elsevier, vol. 19(4), pages 628-634, December.
    3. Nicholas R. Lardy, 2006. "China: Toward a Consumption-Driven Growth Path," Policy Briefs PB06-6, Peterson Institute for International Economics.
    4. XING, Yuqing, 2006. "Why is China so attractive for FDI? The role of exchange rates," China Economic Review, Elsevier, vol. 17(2), pages 198-209.
    5. Nicholas R. Lardy, 2005. "Exchange Rate and Monetary Policy in China," Cato Journal, Cato Journal, Cato Institute, vol. 25(1), pages 41-47, Winter.
    6. Ronald McKinnon & Gunther Schnabl, 2009. "China's financial conundrum and global imbalances," BIS Working Papers 277, Bank for International Settlements.
    7. Cappiello, Lorenzo & Ferrucci, Gianluigi, 2008. "The sustainability of China's exchange rate policy and capital account liberalisation," Occasional Paper Series 82, European Central Bank.
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    Cited by:

    1. Haqiqi , Iman & Bahalou Horeh , Marziyeh, 2013. "Macroeconomic Impacts of Export Barriers in a Dynamic CGE Model," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 8(3), pages 117-150, July.

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    More about this item

    Keywords

    dynamic financial CGE; foreign reserves; trade surplus; monetary policy; fiscal policy;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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