China's Exchange Rate and Monetary Policies: Structural and Institutional Constraints and Reform Options

Geng Xiao
Additional contact information
Geng Xiao: Brookings-Tsinghua Center for Public Policy and Senior Fellow Brookings Institution, School of Public Policy and Management, Tsinghua University, Beijing, China 100084. ,

Asian Economic Papers, 2008, vol. 7, issue 3, 31-49

Abstract: This paper argues that declining transaction costs in exporting on the one hand and the structural and institutional barriers to importing and consumption on the other hand are the main causes for China's rising current account surplus. Reforms in China's planning, financial, and regulatory systems are more important than adjustment in nominal exchange rate for balancing China's trade and for China's surplus capital to hire more of its surplus labor. Although structural inflation and currency appreciation are necessary for China's price level to catch up step-by-step with those in the advanced economies, the pace of inflation and appreciation need to be compatible with China's underlying productivity growth. An "inflation first and appreciation second" approach would help China avoid the risks of both deflation and runaway inflation. The United States and China can have win-win results if both focus on the real constraints behind their external imbalances. (c) 2008 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.

Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.mitpressjournals.org/doi/pdfplus/10.1162/asep.2008.7.3.31 link to full text (text/html)
Access to full text is restricted to subscribers.

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:tpr:asiaec:v:7:y:2008:i:3:p:31-49

Ordering information: This journal article can be ordered from
https://mitpressjour ... rnal/?issn=1535-3516

Access Statistics for this article

Asian Economic Papers is currently edited by Wing Thye Woo, Sungbae An, Fukunari Kimura and Ming Lu

More articles in Asian Economic Papers from MIT Press
Bibliographic data for series maintained by The MIT Press ().