Asset Price, the Exchange Rate, and Trade Balances in China: A Sign Restriction VAR Approach

Wongi Wongi ()
Additional contact information
Wongi Wongi: Chonnam National University

East Asian Economic Review, 2018, vol. 22, issue 3, 371-400

Abstract: Although asset price is an important factor in determining changes in external balances, no studies have investigated it from the Chinese perspective. In this study, I empirically examine the underlying driving forces of China’s trade balances, particularly the role of asset price and the real exchange rate. To this end, I estimate a sign-restricted structural vector autoregressive model with quarterly time series data for China, using the Bayesian method. The results show that changes in asset price affect China’s trade balances through private consumption and investment. Also, an appreciation of the real exchange rate tends to deteriorate trade balances in China. Furthermore, forecast error variance decomposition results indicate that changes in asset price (stock price and housing price) explain about 20% variability of trade balances, while changes in the real exchange rate can explain about 10%.

Keywords: Stock Price; Housing Price; Real Effective Exchange Rate; China Trade Balance; Sign Restriction VAR (search for similar items in EconPapers)
JEL-codes: C32 F14 F41 (search for similar items in EconPapers)
Date: 2018
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.11644/KIEP.EAER.2018.22.3.348 Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:eaerev:0348

Access Statistics for this article

East Asian Economic Review is currently edited by JE Lee

More articles in East Asian Economic Review from Korea Institute for International Economic Policy [30147] 3rd Floor Building C Sejong National Research Complex 370 Sicheong-daero Sejong-si, Korea. Contact information at EDIRC.
Bibliographic data for series maintained by JE Lee ().