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A Tale of Two Surplus Countries: China and Germany

Yin-Wong Cheung, Sven Steinkamp () and Frank Westermann

No GRU_2019_010, GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit

Abstract: We analyze current account imbalances through the lens of the two largest surplus countries; China and Germany. We observe two striking patterns visible since the 2007/8 Global Financial Crisis. First, while China has been gradually reducing its current account surplus, Germany’s surplus has continued to increase throughout and after the crisis. Second, for these two countries, there is a remarkable reversal in the patterns of exchange rate misalignment: China’s currency has turned from being undervalued to overvalued, Germany’s currency has erased its level of overvaluation and become undervalued. Our empirical analyses show that the current account balances of these two countries are quite well explained by currency misalignment, common economic factors, and country-specific factors. Furthermore, we highlight the global financial crisis effects and, for Germany, the importance of differentiating balances against euro and non-euro countries.

Keywords: Currency Misalignment; Current Account Surplus; Global Imbalances; Global Financial Crisis (search for similar items in EconPapers)
JEL-codes: F15 F31 F32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-opm and nep-tra
Date: 2019-05-17
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Published in Open Economies Review, available on 7 June 2019

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https://www.cb.cityu.edu.hk/ef/doc/GRU/WPS/GRU%232019-010%20Cheung.pdf (application/pdf)

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Working Paper: A tale of two surplus countries: China and Germany (2019) Downloads
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