Modeling the Transition Towards Renminbi's Full Convertibility: Implications for China’s Growth

Luigi Bonatti and Andrea Fracasso

MPRA Paper from University Library of Munich, Germany

Abstract: There is a widespread consensus that China’s growth paradigm needs a rebalancing away from investment and external demand and towards consumption and domestic demand. This rebalancing process is supposed to be accompanied by the transition towards Renminbi’s full convertibility. In contrast, it is controversial to what extent this adjustment will accelerate the slowdown of China’s growth, which will likely occur because of other structural factors. We address these issues by means of a two-country two-stage (before and after Renminbi’s full convertibility) model, which reproduces some qualitative features of China’s growth pattern and its relationship with the US. We analyze to what extent altering the Chinese exchange rate policy, as well as other structural and policy variables, may have (short-, medium- and long-term) effects on the evolution of the Chinese economy. The paper shows that by lifting the controls on the capital account and letting the currency float, the Chinese authorities will not only expose the economy to the risks of free capital mobility, but will also renounce to important policy instruments for controlling the dynamics of China’s economy and the allocation of the national resources.

Keywords: Growth rebalancing; global imbalances; currency convertibility; Chinese economy (search for similar items in EconPapers)
JEL-codes: E42 F33 F41 F43 O41 (search for similar items in EconPapers)
Date: 2014-01
New Economics Papers: this item is included in nep-mac, nep-opm and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: MODELLING THE TRANSITION TOWARDS THE RENMINBI'S FULL CONVERTIBILITY: IMPLICATIONS FOR CHINA'S GROWTH (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:54129

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