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Structural Effects of a Real Exchange Rate Revaluation in China: A CGE Assessment

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  • Willenbockel, Dirk

Abstract

The misalignment of the Chinese currency exposed by the rapid build-up of China’s foreign exchange reserves over the past few years has been the subject of considerable recent debate. Recent econometric studies suggest a Renminbi undervaluation on the order of 10 to 30%. The modest revaluation of July 2005 is widely perceived as insufficient to correct China’s balance-of-payments disequilibrium and has not silenced charges that China is engaging in persistent one-sided currency manipulation. Within China there are widespread concerns regarding the adverse employment effects of a major revaluation on labour-intensive export sectors, yet the likely magnitude of these effects remains a controversial issue. The paper aims to shed light on this question by simulating the structural effects of a real exchange rate revaluation that lowers the current account surplus-GDP by 4 percentage-points using a 17-sector computable general equilibrium model of the Chinese economy.

Suggested Citation

  • Willenbockel, Dirk, 2006. "Structural Effects of a Real Exchange Rate Revaluation in China: A CGE Assessment," MPRA Paper 920, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:920
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    References listed on IDEAS

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    Cited by:

    1. Tang, Bo, 2015. "Real exchange rate and economic growth in China: A cointegrated VAR approach," China Economic Review, Elsevier, vol. 34(C), pages 293-310.
    2. Zhong, Shuai & Okiyama, Mitsuru & Tokunaga, Suminori, 2015. "Impacts of Water Management System on Agricultural Production and Household Welfare within Urbanization of China: a Computable General Equilibrium Analysis," Japanese Journal of Agricultural Economics (formerly Japanese Journal of Rural Economics), Agricultural Economics Society of Japan (AESJ), vol. 17, pages 1-6.
    3. Yan Shi & Shumiao Jin & Klaus Seeland, 2015. "Modeling business interruption impacts due to disrupted highway network of Shifang by the Wenchuan earthquake," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 75(2), pages 1731-1745, January.
    4. Whalley, John & Wang, Li, 2011. "The impacts of Renminbi appreciation on trade flows and reserve accumulation in a monetary trade model," Economic Modelling, Elsevier, vol. 28(1-2), pages 614-621, January.
    5. John Whalley & Li Wang, 2007. "Evaluating the Impure Chinese VAT Relative to a Pure Form in a Simple Monetary Trade Model with an Endogenous Trade Surplus," NBER Working Papers 13581, National Bureau of Economic Research, Inc.
    6. Darío Debowicz & Wajiha Saeed, 2014. "Exchange rate misalignment and economic development: the case of Pakistan," Global Development Institute Working Paper Series 21014, GDI, The University of Manchester.
    7. Meng, Sam, 2015. "Modeling the impact of exchange rates using a multicurrency framework," Economic Modelling, Elsevier, vol. 49(C), pages 223-231.
    8. Yang, Jun & Zhang, Wei & Tokgoz, Simla, 2012. "The macroeconomic impacts of Chinese currency appreciation on China and the rest of world : A global computable general equilibrium analysis," IFPRI discussion papers 1178, International Food Policy Research Institute (IFPRI).
    9. Hakeem Eltalla, 2013. "Devaluation and Output Growth in Palestine: Evidence from a CGE model," European Journal of Business and Economics, Central Bohemia University, vol. 8(4), pages 4221:8-4221, May.
    10. He, Y.X. & Zhang, S.L. & Yang, L.Y. & Wang, Y.J. & Wang, J., 2010. "Economic analysis of coal price-electricity price adjustment in China based on the CGE model," Energy Policy, Elsevier, vol. 38(11), pages 6629-6637, November.
    11. Debowicz, Dario & Saeed, Wajiha, 2014. "Exchange rate misalignment in Pakistan and its general equilibrium distributional implications:," PSSP working papers 16, International Food Policy Research Institute (IFPRI).
    12. Dong Yan & Whalley John, 2011. "Model Structure and the Combined Welfare and Trade Effects of China's Trade Related Policies," Global Economy Journal, De Gruyter, vol. 10(4), pages 1-21, January.
    13. Yongxiu He & Yangyang Liu & Tian Xia & Min Du & Hongzhen Guo, 2014. "The Optimal Price Ratio of Typical Energy Sources in Beijing Based on the Computable General Equilibrium Model," Energies, MDPI, Open Access Journal, vol. 7(5), pages 1-24, April.
    14. Bliss, Christopher, 2007. "Trade, Growth, and Inequality," OUP Catalogue, Oxford University Press, number 9780199204649.
    15. He, Y.X. & Yang, L.F. & He, H.Y. & Luo, T. & Wang, Y.J., 2011. "Electricity demand price elasticity in China based on computable general equilibrium model analysis," Energy, Elsevier, vol. 36(2), pages 1115-1123.
    16. Dong, Baomin & Ma, Xili & Wang, Ningjing & Wei, Weixian, 2020. "Impacts of exchange rate volatility and international oil price shock on China's regional economy: A dynamic CGE analysis," Energy Economics, Elsevier, vol. 86(C).
    17. He, Yongxiu & Liu, Yangyang & Wang, Jianhui & Xia, Tian & Zhao, Yushan, 2014. "Low-carbon-oriented dynamic optimization of residential energy pricing in China," Energy, Elsevier, vol. 66(C), pages 610-623.
    18. Yang, Jun & Zhang, Wei & Tokgoz, Simla, 2013. "Macroeconomic impacts of Chinese currency appreciation on China and the Rest of World: A global CGE analysis," Journal of Policy Modeling, Elsevier, vol. 35(6), pages 1029-1042.

    More about this item

    Keywords

    Renminbi undervaluation; real exchange rate misalignment; applied general equilibrium analysis;

    JEL classification:

    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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