The Exchange Value of the Renminbi and China's Balance of Trade: An Emp irical Study
This paper aims at assessing the relationship between the exchange value of the Chinese Renminbi (RMG) and China's trade balance by means of some recent econometric techniques designed to evaluate the existence and the direction of causality. We find strong evidence suggesting that changes in the trade balance and each of its components Granger-cause changes in the exchange rate but no evidence indicating a causal link running from the exchange rate to the trade balance. Our results seem to be rather supportive of the accommodative role of the exchange rate proposed by the modern theory of the trade balance determination and not supportive of the existence of a J-curve in China's trade balance. Our finding of a bidirectional causal relationship between the real exchange rate and the price variables confirms the presence of a vicious circle hypothesis following currency devaluation. This has important implications for the discussions of impacts of the RMB devaluation on China's trade balance.
|Date of creation:||Sep 1996|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
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.:
- Rose, Andrew K. & Yellen, Janet L., 1989. "Is there a J-curve?," Journal of Monetary Economics, Elsevier, vol. 24(1), pages 53-68, July.
- Johansen, Soren, 1992.
"Determination of Cointegration Rank in the Presence of a Linear Trend,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 54(3), pages 383-397, August.
- Johansen, S., 1991. "Determination of Cointegration Rank in the Presence of a Linear Trend," Papers 76a, Helsinki - Department of Economics.
- Himarios, Daniel, 1989. "Do Devaluations Improve the Trade Balance? The Evidence Revisited," Economic Inquiry, Western Economic Association International, vol. 27(1), pages 143-168, January.
- Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Gruen, David W R & Wilkinson, Jenny, 1994. "Australia's Real Exchange Rate--Is It Explained by the Terms of Trade or by Real Interest Differentials?," The Economic Record, The Economic Society of Australia, vol. 70(209), pages 204-219, June.
- David W.R. Gruen & Jenny Wilkinson, 1991. "Australia’s Real Exchange Rate – Is it Explained by the Terms of Trade or by Real Interest Differentials?," RBA Research Discussion Papers rdp9108, Reserve Bank of Australia.
- Jeremy Greenwood, 1984. "Non-traded Goods, the Trade Balance, and the Balance of Payments," Canadian Journal of Economics, Canadian Economics Association, vol. 17(4), pages 806-823, November.
- Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
- Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-276, March.
- Brada, Josef C & Kutan, Ali M & Zhou, Su, 1993. "China's Exchange Rate and the Balance of Trade," Economic Change and Restructuring, Springer, vol. 26(3), pages 229-242.
- Michael W. Bell & Kalpana Kochhar & Hoe Ee Khor, 1993. "China at the Threshold of a Market Economy," IMF Occasional Papers 107, International Monetary Fund.
- Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-228, August.
- Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
- Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, vol. 35(1), pages 143-159, May.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Razin, Assaf, 1984. "Capital movements, intersectoral resource shifts and the trade balance," European Economic Review, Elsevier, vol. 26(1-2), pages 135-152. Full references (including those not matched with items on IDEAS)