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China; Sources of Real Exchange Rate Fluctuations

  • Tao Wang
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    This paper reviews the evolution of China's real effective exchange rate between 1980 and 2002, and uses a structural vector autoregression model to study the relative importance of different types of macroeconomic shocks for fluctuations in the real exchange rate. The structural decomposition shows that relative real demand and supply shocks account for most of the variations in real exchange rate changes during the estimation period. The paper also finds that supply shocks are as important as nominal shocks in accounting for real exchange rate fluctuations, in contrast with other studies that show that, in industrial countries, nominal shocks are more important in explaining real exchange rate fluctuations.

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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=17115
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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/18.

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    Length: 23
    Date of creation: 01 Feb 2004
    Date of revision:
    Handle: RePEc:imf:imfwpa:04/18
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    1. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September.
    2. Clarida, Richard & Galí, Jordi, 1994. "Sources of Real Exchange Rate Fluctuations: How Important are Nominal Shocks?," CEPR Discussion Papers 951, C.E.P.R. Discussion Papers.
    3. Chou, W. L. & Shih, Y. C., 1998. "The Equilibrium Exchange Rate of the Chinese Renminbi," Journal of Comparative Economics, Elsevier, vol. 26(1), pages 165-174, March.
    4. Dibooglu, Selahattin & Kutan, Ali M., 2000. "Sources of real exchange rate fluctuations in transition economies: The case of Ploand and Hungary," ZEI Working Papers B 14-2000, ZEI - Center for European Integration Studies, University of Bonn.
    5. Alun H. Thomas, 1997. "Is the Exchange Rate a Shock Absorber? the Case of Sweden," IMF Working Papers 97/176, International Monetary Fund.
    6. Tamim Bayoumi and Barry Eichengreen., 1993. "Macroeconomic Adjustment under Bretton Woods and the Post-Bretton-Woods Float: An Impulse-Response Analysis," Center for International and Development Economics Research (CIDER) Working Papers C93-006, University of California at Berkeley.
    7. Martin Eichenbaum & Charles Evans, 1992. "Some empirical evidence on the effects of monetary policy shocks on exchange rates," Working Paper Series, Macroeconomic Issues 92-32, Federal Reserve Bank of Chicago.
    8. C. John McDermott & Eswar Prasad & Pierre-Richard Agénor, 1999. "Macroeconomic Fluctuations in Developing Countries; Some Stylized Facts," IMF Working Papers 99/35, International Monetary Fund.
    9. Canzoneri, Matthew B & Vallés Liberal, Javier & Viñals, José, 1996. "Do Exchange Rates Move to Address International Macroeconomic Imbalances?," CEPR Discussion Papers 1498, C.E.P.R. Discussion Papers.
    10. Hoffmaister, Alexander W. & Roldos, Jorge E., 2001. "The Sources of Macroeconomic Fluctuations in Developing Countries: Brazil and Korea," Journal of Macroeconomics, Elsevier, vol. 23(2), pages 213-239, April.
    11. Taimur Baig & Jörg Decressin & Tarhan Feyzioglu & Manmohan S. Kumar & Chris Faulkner-MacDonagh, 2003. "Deflation; Determinants, Risks, and Policy Options," IMF Occasional Papers 221, International Monetary Fund.
    12. Zhang, Zhichao, 2001. "Real Exchange Rate Misalignment in China: An Empirical Investigation," Journal of Comparative Economics, Elsevier, vol. 29(1), pages 80-94, March.
    13. Bankim Chadha & Eswar Prasad, 1997. "Real Exchange Rate Fluctuations and the Business Cycle: Evidence from Japan," IMF Staff Papers, Palgrave Macmillan, vol. 44(3), pages 328-355, September.
    14. Ahmed, Shaghil, 2003. "Sources of economic fluctuations in Latin America and implications for choice of exchange rate regimes," Journal of Development Economics, Elsevier, vol. 72(1), pages 181-202, October.
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