China's exchange rate policy and Asian trade

Alicia García-Herrero and Tuuli Koivu
Authors registered in the RePEc Author Service: Alicia Garcia Herrero

No 282, BIS Working Papers from Bank for International Settlements

Abstract: This paper shows empirically that China's trade balance is sensitive to fluctuations in the real effective exchange rate of the renminbi. However, the current size of the trade surplus is such that exchange rate policy alone will probably not be able to address the imbalance. The potential reduction in the trade surplus resulting from an increase in the renminbi exchange rate is limited mainly because Chinese imports do not react as expected to a renminbi appreciation - they tend to fall rather than increase. By estimating bilateral import equations for China and its major trade partners, we find that the reaction for imports is generally confirmed for China's trade with Southeast Asian countries. That result might be attributable to Asia's vertical integration, as a large share of Chinese imports from Southeast Asia are re-exported. We also find that total exports from a number of Asian countries react negatively to a renminbi appreciation, which points to a dependence of Asian countries' exports on those of China.

Keywords: China; trade; exports; real exchange rate (search for similar items in EconPapers)
Pages: 29 pages
Date: 2009-04
New Economics Papers: this item is included in nep-cna, nep-dev, nep-ifn, nep-int, nep-sea and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Related works:
Working Paper: China: Exchange Rate Policy and Asian Trade (2009)
Journal Article: CHINA'S EXCHANGE RATE POLICY AND ASIAN TRADE (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:282

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