Does an Undervalued Currency Promote Growth? Evidence from China

Artatrana Ratha (), Eungmin Kang and Mary Edwards ()
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Mary Edwards: Department of Economics, St. Cloud State University

Working Papers from Saint Cloud State University, Department of Economics

Abstract: Whether currency devaluation promotes growth is an empirically open question. Coexistence of an undervalued currency and the world�s largest trade surplus alongside a booming economy makes China a unique case study. Using the bounds-testing approach to cointegration and error correction modeling proposed by Pesaran et al. (2001), we estimate a reduced form model for China. The findings suggest that devaluation of the Yuan is contractionary in the short run but expansionary in the long run.

Keywords: devaluation; output; growth; China; cointegration (search for similar items in EconPapers)
Date: 2008-07-01
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