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Spillover effects of exchange rates : a study of the Renminbi

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  • Mattoo, Aaditya
  • Mishra, Prachi
  • Subramanian, Arvind

Abstract

This paper estimates how changes in China's exchange rates would affect exports from competitor countries in third-country markets -- in other words, the"spillover effect."The authors use recent theory to develop an identification strategy, with a key role for the competition between China and its developing country competitors in specific products and export destinations. Using disaggregated trade data, they estimate the spillover effect by exploiting the variation across different exporters, importers, products, and time periods. They find a spillover effect that is statistically and quantitatively significant. Their estimates suggest that a 10-percent appreciation of China's real exchange rate boosts a developing country's exports of a typical four-digit Harmonized System product category to third markets by about 1.5 to 2 percent on average. The magnitude of the spillover effect varies systematically with the characteristics of products, such as the extent to which they are differentiated.

Suggested Citation

  • Mattoo, Aaditya & Mishra, Prachi & Subramanian, Arvind, 2012. "Spillover effects of exchange rates : a study of the Renminbi," Policy Research Working Paper Series 5989, The World Bank.
  • Handle: RePEc:wbk:wbrwps:5989
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    References listed on IDEAS

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    1. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains From Variety," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 541-585.
    2. Daron Acemoglu & Simon Johnson, 2007. "Disease and Development: The Effect of Life Expectancy on Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 115(6), pages 925-985, December.
    3. Kristin J Forbes, 2002. "How Do Large Depreciations Affect Firm Performance?," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 214-238.
    4. 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.
    5. 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.
    6. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics,in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier.
    7. 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.
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    Cited by:

    1. 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.
    2. Samba Mbaye, 2012. "Beggar-thy-Neighbor Effects of Currency Undervaluation: Is China the Tip of the Iceberg?," Working Papers halshs-00761380, HAL.
    3. Keddad, Benjamin, 2016. "How do the Renminbi and other East Asian currencies co-move?," MPRA Paper 83782, University Library of Munich, Germany.
    4. 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.
    5. 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.

    More about this item

    Keywords

    Debt Markets; Emerging Markets; Economic Theory&Research; Currencies and Exchange Rates; Markets and Market Access;

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