China’s Exchange Rate and International Adjustment in Wages, Prices, and Interest Rates: Japan Déjà Vu?

Ronald McKinnon and Gunther Schnabl

No 1720, CESifo Working Paper Series from CESifo

Abstract: China keeps its exchange rate tightly fixed to the dollar. Its productivity growth and trade surplus have been high, and it continues to accumulate large dollar reserves. Many observers take this as evidence that the renminbi is undervalued and should be appreciated to reduce the Chinese trade surplus. We argue that an appreciation of the renminbi need not reduce China’s trade surplus but could cause serious deflation in China. To show this, we consider international adjustment between China and the United States from both an asset-market and a labor-market perspective, and compare this to Japan’s unsuccessful appreciation of the yen.

Keywords: China; exchange rate; adjustment; assets markets; labour markets (search for similar items in EconPapers)
JEL-codes: F15 F31 F33 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-cba, nep-cna, nep-dev, nep-fmk, nep-sea and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

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Journal Article: China's Exchange Rate and International Adjustment in Wages, Prices and Interest Rates: Japan Déjà Vu? (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1720

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