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China'S New Exchange Rate Policy: Will China Follow Japan Into A Liquidity Trap?

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  • RONALD I. MCKINNON

    (Department of Economics, Landau Economics Building, Stanford University, Stanford, CA 94305-6072, USA)

Abstract

Todays' American mercantile pressure on China to appreciate the renminbi against the dollar is eerily similar to the American pressure on Japan to appreciate the yen that began over 30 years ago. There are some differences between the two cases, but downward pressure on Chinese interest rates from foreign exchange risk could lead China into a zero interest rate liquidity trap much like the one that Japan has suffered since the mid-1990s.

Suggested Citation

  • Ronald I. Mckinnon, 2005. "China'S New Exchange Rate Policy: Will China Follow Japan Into A Liquidity Trap?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 50(spec0), pages 463-474.
    • Handle: RePEc:wsi:serxxx:v:50:y:2005:i:spec0:n:s0217590805002153
    DOI: 10.1142/S0217590805002153
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    1. Ronald McKinnon & Gunther Schnabl, 2004. "The Return to Soft Dollar Pegging in East Asia: Mitigating Conflicted Virtue," International Finance, Wiley Blackwell, vol. 7(2), pages 169-201, July.
    2. Michael Funke, 2005. "Inflation in Mainland China - Modelling a Roller Coaster Ride," Quantitative Macroeconomics Working Papers 20507, Hamburg University, Department of Economics.
    3. Rishi Goyal & Ronald McKinnon, 2003. "Japan's Negative Risk Premium in Interest Rates: The Liquidity Trap and the Fall in Bank Lending," The World Economy, Wiley Blackwell, vol. 26(3), pages 339-363, March.
    4. Ronald I. McKinnon & Kenichi Ohno, 1997. "Dollar and Yen: Resolving Economic Conflict between the United States and Japan," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262133350, December.
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    Cited by:

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    2. Philip R. Lane & Sergio L. Schmukler, 2006. "The international financial integration of China and India," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
    3. Antoine Bouveret & Sana Mestiri & Henri Sterdyniak, 2006. "The renminbi equilibrium exchange rate: an agnostic view," Documents de Travail de l'OFCE 2006-13, Observatoire Francais des Conjonctures Economiques (OFCE).
    4. Paul S. L. Yip & Yiu-Kuen Tse & Yingjie Dong, 2017. "The Exchange Rate System Reform in China: US Pressure, Implicit Gradual Appreciation and Explicit Exchange Rate Bands," Economic Growth Centre Working Paper Series 1710, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
    5. Cao Emily Yixuan & Cao Yong & Prasad Rashmi & Shen Zhengping, 2011. "U.S.-China Exchange Rate Negotiation: Stakeholders' Participation and Strategy Deployment," Business and Politics, De Gruyter, vol. 13(3), pages 1-25, October.
    6. Yin-Wong Cheung & Dickson C. Tam & Matthew S. Yiu, 2008. "Does the Chinese interest rate follow the US interest rate?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(1), pages 53-67.
    7. repec:spo:wpmain:info:hdl:2441/5282 is not listed on IDEAS
    8. Antoine Bouveret & Sana Mestiri & Henri Sterdyniak, 2006. "La valeur du yuan. Les paradoxes du taux de change d'équilibre," Revue de l'OFCE, Presses de Sciences-Po, vol. 98(3), pages 77-127.
    9. Lijian Sun & Shengxing Zhang, 2008. "External Dependent Economy and Structural Real Estate Bubbles in China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 16(1), pages 34-50, January.
    10. repec:hal:spmain:info:hdl:2441/5282 is not listed on IDEAS
    11. Paul S. L. Yip, 2016. "China’S Exchange Rate System Reform: Two Potential Mistakes And The Recommended Long-Term System," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(02), pages 1-40, June.
    12. Wu, Ying, 2009. "Measuring China's monetary sterilization and autonomy in the era of globalization: 1995-2005," Journal of Asian Economics, Elsevier, vol. 20(3), pages 336-347, May.
    13. Kwack, Sung Yeung & Ahn, Choong Y. & Lee, Young S. & Yang, Doo Y., 2007. "Consistent estimates of world trade elasticities and an application to the effects of Chinese Yuan (RMB) appreciation," Journal of Asian Economics, Elsevier, vol. 18(2), pages 314-330, April.
    14. Cappiello, Lorenzo & Mehl, Arnaud, 2007. "Uncovered interest parity at distant horizons: evidence on emerging economies & nonlinearities," Working Paper Series 801, European Central Bank.
    15. repec:hal:spmain:info:hdl:2441/5121 is not listed on IDEAS
    16. repec:spo:wpmain:info:hdl:2441/5121 is not listed on IDEAS
    17. repec:hal:wpspec:info:hdl:2441/5121 is not listed on IDEAS
    18. Niklas Potrafke, 2007. "Social Security in Germany: A Prey of Political Opportunism?," Discussion Papers of DIW Berlin 677, DIW Berlin, German Institute for Economic Research.
    19. repec:dau:papers:123456789/5512 is not listed on IDEAS
    20. repec:spo:wpecon:info:hdl:2441/5121 is not listed on IDEAS

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