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Exchange-rate effects on China's trade: an interim report

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Though China's share of world trade is comparable to that of Japan, little is known about the response of China's trade to changes in exchange rates. The few estimates available suffer from two limitations. First, the data for trade prices are based on proxies for prices from other countries. Second, the estimation sample includes the period of China's transformation from a centrally-planned economy to a market-oriented system. To address these limitations, this paper develops an empirical model explaining the shares of China's exports and imports in world trade in terms of the real effective value of the renminbi. The specifications control for foreign direct investment and for the role of imports of parts to assemble merchandise exports. Parameter estimation uses disaggregated monthly trade data and excludes the period during which most of China's decentralization occurred. The estimation results suggest that a ten-percent real appreciation of the renminbi lowers the share of aggregate Chinese exports by a half of a percentage point. The same appreciation lowers the share of aggregate imports by about a tenth of a percentage point.

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  • Jaime R. Marquez & John W. Schindler, 2006. "Exchange-rate effects on China's trade: an interim report," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
    • Handle: RePEc:fip:fedfpr:y:2006:i:jun:x:5
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    1. Mrs. Anuradha Dayal-Gulati & Ms. Valerie Cerra, 1999. "China's Trade Flows: Changing Price Sensitivies and the Reform Process," IMF Working Papers 1999/001, International Monetary Fund.
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    2. Döhrn, Roland & Brüstle, Alena & Middendorf, Torge & Schmidt, Torsten, 2006. "Die wirtschaftliche Entwicklung im Ausland: Nachlassende Expansion," RWI Konjunkturberichte, RWI - Leibniz-Institut für Wirtschaftsforschung, vol. 57(2), pages 83-108.
    3. Alicia Garcia-Herrero & Tuuli Koivu, 2008. "China'S Exchange Rate Policy And Asian Trade," Economie Internationale, CEPII research center, issue 116, pages 53-92.
    4. Whalley, John & Wang, Li, 2011. "The impacts of Renminbi appreciation on trade flows and reserve accumulation in a monetary trade model," Economic Modelling, Elsevier, vol. 28(1-2), pages 614-621, January.
    5. Robert Lafrance, 2008. "China's Exchange Rate Policy: A Survey of the Literature," Discussion Papers 08-5, Bank of Canada.
    6. Mizanur RAHMAN & Willem THORBECKE, 2007. "How Would China's Exports be Affected by a Unilateral Appreciation of the RMB and a Joint Appreciation of Countries Supplying Intermediate Imports?," Discussion papers 07012, Research Institute of Economy, Trade and Industry (RIETI).
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