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Spillover Effects of Exchange Rates; A Study of the Renminbi

Author

Listed:
  • Arvind Subramanian
  • Prachi Mishra
  • Aaditya Mattoo

Abstract

This paper estimates the impact of China's exchange rate changes on exports of competitor countries in third markets, which we call the "spillover effect". We use recent theory to develop an identification strategy in which competition between China and its developing country competitors in specific products and destinations plays a key role. We exploit the variation - afforded by disaggregated trade data - across exporters, importers, product, and time to estimate this spillover effect. We find robust evidence of a statistically and quantitatively significant spillover effect. Our estimates suggest that a 10 percent appreciation of China's real exchange rate boosts on average a developing country's exports of a typical 4-digit HS product category to third markets by about 1.5-2 percent. The magnitude of the spillover effect varies systematically with product characteristics as implied by theory.

Suggested Citation

  • Arvind Subramanian & Prachi Mishra & Aaditya Mattoo, 2012. "Spillover Effects of Exchange Rates; A Study of the Renminbi," IMF Working Papers 12/88, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:12/88
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    References listed on IDEAS

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    3. Gita Gopinath & Oleg Itskhoki & Roberto Rigobon, 2010. "Currency Choice and Exchange Rate Pass-Through," American Economic Review, American Economic Association, vol. 100(1), pages 304-336, March.
    4. Morris Goldstein & Mohsin S. Khan, 2017. "Income and Price Effects in Foreign Trade," World Scientific Book Chapters,in: TRADE CURRENCIES AND FINANCE, chapter 1, pages 3-81 World Scientific Publishing Co. Pte. Ltd..
    5. Kristin J Forbes, 2002. "How Do Large Depreciations Affect Firm Performance?," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 214-238.
    6. Simon Johnson & Jonathan D Ostry & Arvind Subramanian, 2010. "Prospects for Sustained Growth in Africa: Benchmarking the Constraints," IMF Staff Papers, Palgrave Macmillan, vol. 57(1), pages 119-171, April.
    7. Michael Peneder, 1999. "Intangible Investment and Human Resources. The New WIFO Taxonomy of Manufacturing Industries," WIFO Working Papers 114, WIFO.
    8. Gordon H. Hanson & Raymond Robertson, 2010. "China and the Manufacturing Exports of Other Developing Countries," NBER Chapters,in: China's Growing Role in World Trade, pages 137-159 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Samba MBAYE, 2012. "Beggar-thy-Neighbor Effects of Currency Undervaluation: Is China the Tip of the Iceberg?," Working Papers 201239, CERDI.
    2. Shu, Chang & He, Dong & Cheng, Xiaoqiang, 2015. "One currency, two markets: the renminbi's growing influence in Asia-Pacific," China Economic Review, Elsevier, vol. 33(C), pages 163-178.
    3. Keddad, Benjamin, 2016. "How do the Renminbi and other East Asian currencies co-move?," MPRA Paper 83782, University Library of Munich, Germany.
    4. repec:eee:finana:v:56:y:2018:i:c:p:253-263 is not listed on IDEAS
    5. Allegret, Jean-Pierre & Sallenave, Audrey, 2014. "The impact of real exchange rates adjustments on global imbalances: A multilateral approach," Economic Modelling, Elsevier, vol. 37(C), pages 149-163.
    6. Eichengreen, Barry & Tong, Hui, 2015. "Effects of renminbi appreciation on foreign firms: The role of processing exports," Journal of Development Economics, Elsevier, vol. 116(C), pages 146-157.

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