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Exchange rate reform and its inflationary consequences: an empirical analysis for China

In examining China's exchange rate policy in the reforming years, the paper finds empirical evidence of its long-run inflationary consequences, but the effects appear to be not sizable. In the short-run, while changes in the devaluation rate are positively correlated with the increase in the growth rate of inflation, the inflation inertia is also modest. the moderate inflationary cost of devaluation provides some explanation of the smooth transition of exchange rate policy regime in China and the authorities' ability to put more weight on external competitiveness.

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Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 9808.

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Date of creation: 01 Jan 1998
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Handle: RePEc:stn:sotoec:9808
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  1. Menon, Jayant, 1995. " Exchange Rate Pass-Through," Journal of Economic Surveys, Wiley Blackwell, vol. 9(2), pages 197-231, June.
  2. Zhichao Zhang, 2000. "Exchange Rate Reform in China: An Experiment in the Real Targets Approach," The World Economy, Wiley Blackwell, vol. 23(8), pages 1057-1081, 08.
  3. Peter Hooper & Barbara Lowrey, 1979. "Impact of the dollar depreciation on the U.S. price level: an analytical survey of empirical estimates," International Finance Discussion Papers 128, Board of Governors of the Federal Reserve System (U.S.).
  4. Peter Hooper & Barbara R. Lowrey, 1979. "Impact of the dollar depreciation on the U.S. price level: an analytical survey of empirical estimates," Staff Studies 103, Board of Governors of the Federal Reserve System (U.S.).
  5. Robert C. Feenstra & Joseph E. Gagnon & Michael M. Knetter., 1993. "Market share and exchange rate pass-through in world automobile trade," International Finance Discussion Papers 446, Board of Governors of the Federal Reserve System (U.S.).
  6. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, March.
  7. Papell, David H, 1994. "Exchange Rates and Prices: An Empirical Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 397-410, May.
  8. Rtta Hanninen & Anne Toppinen, 1999. "Long-run price effects of exchange rate changes in Finnish pulp and paper exports," Applied Economics, Taylor & Francis Journals, vol. 31(8), pages 947-956.
  9. Clark Leith, J., 1991. "The exchange rate and the price level in a small open economy: Botswana," Journal of Policy Modeling, Elsevier, vol. 13(2), pages 309-315.
  10. Maozu Lu & Zhichao Zhang, 2000. "Parallel exchange market as a transition mechanism for foreign exchange reform: China's experiment," Applied Financial Economics, Taylor & Francis Journals, vol. 10(2), pages 123-135.
  11. Balakrishnan, Pulapre, 1994. "How best to model inflation in India," Journal of Policy Modeling, Elsevier, vol. 16(6), pages 677-683, December.
  12. Dwyer, Jacqueline & Lam, Ricky, 1995. "The Two Stages of Exchange Rate Pass-Through: Implications for Inflation," Australian Economic Papers, Wiley Blackwell, vol. 34(65), pages 157-79, December.
  13. Gross, Dominique M. & Schmitt, Nicolas, 2000. "Exchange rate pass-through and dynamic oligopoly: an empirical investigation," Journal of International Economics, Elsevier, vol. 52(1), pages 89-112, October.
  14. Zhang, Zhichao, 2001. " China's Exchange Rate Reform and Exports," Economic Change and Restructuring, Springer, vol. 34(1-2), pages 89-112.
  15. Rudiger Dornbusch & Stanley Fischer, 1986. "The Open Economy: Implications for Monetary and Fiscal Policy," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages 459-516 National Bureau of Economic Research, Inc.
  16. Younger, Stephen D, 1992. "Testing the Link between Devaluation and Inflation: Time Series Evidence from Ghana," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 1(3), pages 369-94, November.
  17. Phylaktis, Kate & Girardin, Eric, 2001. "Foreign exchange markets in transition economies: China," Journal of Development Economics, Elsevier, vol. 64(1), pages 215-235, February.
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