Are Currency Revaluations Contractionary in China?
Chinese economy has been in a state of external imbalance and internal imbalance for some years, which certainly has something to do with the undervaluation of renminbi (RMB). But Chinese Government hesitates to revalue RMB because of the worry that RMB revaluations are contractionary thus have negative impact on China's economic growth and employment. The purpose of this paper is to empirically assess the effects of RMB real exchange rate on China's output. The econometric work of the paper shows that even after sources of spurious correlation and reverse causation are controlled for, RMB revaluation has led to a decline in Chinas output, suggesting that RMB revaluations do be contractionary. The paper gives some possible explanations to this finding, and points out that the finding does not consequentially imply that China should continue maintaining the undervaluation of RMB.
|Date of creation:||Jan 2006|
|Contact details of provider:|| Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200|
Web page: http://www.eaber.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Van Wijnbergen, Sweder, 1986.
"Exchange rate management and stabilization policies in developing countries,"
Journal of Development Economics,
Elsevier, vol. 23(2), pages 227-247, October.
- Sweder van Wijnbergen, 1986. "Exchange Rate Management and Stabilization Policies in Developing Countries," NBER Chapters, in: Economic Adjustment and Exchange Rates in Developing Countries, pages 17-42 National Bureau of Economic Research, Inc.
- Virginie Coudert & Cécile Couharde, 2005. "Real Equilibrium Exchange Rate in China," Working Papers 2005-01, CEPII research center.
- Alexander W. Hoffmaister & Carlos A. VÃ©gh, 1996.
"Disinflation and The Recession-Now-versus-Recession-Later Hypothesis: Evidence from Uruguay,"
IMF Staff Papers,
Palgrave Macmillan, vol. 43(2), pages 355-394, June.
- Carlos A. VÃ©gh Gramont & Alexander W. Hoffmaister, 1995. "Disinflation and the Recession-Now-Versus-Recession-Later Hypothesis; Evidence From Uruguay," IMF Working Papers 95/99, International Monetary Fund.
- Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, December.
- Steven B. Kamin & John H. Rogers, 1997.
"Output and the real exchange rate in developing countries: an application to Mexico,"
International Finance Discussion Papers
580, Board of Governors of the Federal Reserve System (U.S.).
- Kamin, Steve B. & Rogers, John H., 2000. "Output and the real exchange rate in developing countries: an application to Mexico," Journal of Development Economics, Elsevier, vol. 61(1), pages 85-109, February.
- Frankel, Jeffrey, 2005.
"Contractionary Currency Crashes In Developing Countries,"
Working Paper Series
rwp05-017, Harvard University, John F. Kennedy School of Government.
- Jeffrey A. Frankel, 2005. "Contractionary Currency Crashes in Developing Countries," NBER Working Papers 11508, National Bureau of Economic Research, Inc.
- Frank Dietrich & Hartmut Kliemt & Michael Imhoff, 2002. "Introduction," Homo Oeconomicus, Institute of SocioEconomics, vol. 19, pages 7-8.
- Gylfason, Thorvaldur & Radetzki, Marian, 1991. "Does Devaluation Make Sense in the Least Developed Countries?," Economic Development and Cultural Change, University of Chicago Press, vol. 40(1), pages 1-25, October.
When requesting a correction, please mention this item's handle: RePEc:eab:macroe:22712. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shiro Armstrong)
If references are entirely missing, you can add them using this form.