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Structural Effects of a Real Exchange Rate Revaluation in China: A CGE Assessment

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  • Willenbockel, Dirk

Abstract

The misalignment of the Chinese currency exposed by the rapid build-up of China’s foreign exchange reserves over the past few years has been the subject of considerable recent debate. Recent econometric studies suggest a Renminbi undervaluation on the order of 10 to 30%. The modest revaluation of July 2005 is widely perceived as insufficient to correct China’s balance-of-payments disequilibrium and has not silenced charges that China is engaging in persistent one-sided currency manipulation. Within China there are widespread concerns regarding the adverse employment effects of a major revaluation on labour-intensive export sectors, yet the likely magnitude of these effects remains a controversial issue. The paper aims to shed light on this question by simulating the structural effects of a real exchange rate revaluation that lowers the current account surplus-GDP by 4 percentage-points using a 17-sector computable general equilibrium model of the Chinese economy.

Suggested Citation

  • Willenbockel, Dirk, 2006. "Structural Effects of a Real Exchange Rate Revaluation in China: A CGE Assessment," MPRA Paper 920, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:920
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    Cited by:

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    2. Debowicz, Dario & Saeed, Wajiha, 2014. "Exchange rate misalignment in Pakistan and its general equilibrium distributional implications:," PSSP working papers 16, International Food Policy Research Institute (IFPRI).
    3. LU Chuanyi & CHEN Wenying, 2022. "Scenario of China Reaching Carbon Peaking ahead of Schedule and Its Effect on Macro Economy," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 17(2), pages 212244-2122, June.
    4. Tang, Bo, 2015. "Real exchange rate and economic growth in China: A cointegrated VAR approach," China Economic Review, Elsevier, vol. 34(C), pages 293-310.
    5. 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.
    6. Meng, Xianming & Siriwardana, Mahinda & McNeill, Judith, 2013. "The Impact of an Appreciation of the Chinese Yuan on the Global Trade," Conference papers 332340, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    7. Hakeem Eltalla, 2013. "Devaluation and Output Growth in Palestine: Evidence from a CGE model," European Journal of Business and Economics, Central Bohemia University, vol. 8(4), pages 4221:8-4221, May.
    8. He, Y.X. & Yang, L.F. & He, H.Y. & Luo, T. & Wang, Y.J., 2011. "Electricity demand price elasticity in China based on computable general equilibrium model analysis," Energy, Elsevier, vol. 36(2), pages 1115-1123.
    9. He, Yongxiu & Liu, Yangyang & Wang, Jianhui & Xia, Tian & Zhao, Yushan, 2014. "Low-carbon-oriented dynamic optimization of residential energy pricing in China," Energy, Elsevier, vol. 66(C), pages 610-623.
    10. Zhong, Shuai & Okiyama, Mitsuru & Tokunaga, Suminori, 2015. "Impacts of Water Management System on Agricultural Production and Household Welfare within Urbanization of China: a Computable General Equilibrium Analysis," Japanese Journal of Agricultural Economics (formerly Japanese Journal of Rural Economics), Agricultural Economics Society of Japan (AESJ), vol. 17, pages 1-6.
    11. Meng, Sam, 2015. "Modeling the impact of exchange rates using a multicurrency framework," Economic Modelling, Elsevier, vol. 49(C), pages 223-231.
    12. Bliss, Christopher, 2007. "Trade, Growth, and Inequality," OUP Catalogue, Oxford University Press, number 9780199204649.
    13. Darío Debowicz & Wajiha Saeed, 2014. "Exchange rate misalignment and economic development: the case of Pakistan," Global Development Institute Working Paper Series 21014, GDI, The University of Manchester.
    14. John Whalley & Li Wang, 2007. "Evaluating the Impure Chinese VAT Relative to a Pure Form in a Simple Monetary Trade Model with an Endogenous Trade Surplus," NBER Working Papers 13581, National Bureau of Economic Research, Inc.
    15. Yang, Jun & Zhang, Wei & Tokgoz, Simla, 2012. "The macroeconomic impacts of Chinese currency appreciation on China and the rest of world : A global computable general equilibrium analysis," IFPRI discussion papers 1178, International Food Policy Research Institute (IFPRI).
    16. Dong, Baomin & Ma, Xili & Wang, Ningjing & Wei, Weixian, 2020. "Impacts of exchange rate volatility and international oil price shock on China's regional economy: A dynamic CGE analysis," Energy Economics, Elsevier, vol. 86(C).
    17. Dong Yan & Whalley John, 2011. "Model Structure and the Combined Welfare and Trade Effects of China's Trade Related Policies," Global Economy Journal, De Gruyter, vol. 10(4), pages 1-21, January.
    18. Yan Shi & Shumiao Jin & Klaus Seeland, 2015. "Modeling business interruption impacts due to disrupted highway network of Shifang by the Wenchuan earthquake," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 75(2), pages 1731-1745, January.
    19. Yongxiu He & Yangyang Liu & Tian Xia & Min Du & Hongzhen Guo, 2014. "The Optimal Price Ratio of Typical Energy Sources in Beijing Based on the Computable General Equilibrium Model," Energies, MDPI, vol. 7(5), pages 1-24, April.
    20. Yang, Jun & Zhang, Wei & Tokgoz, Simla, 2013. "Macroeconomic impacts of Chinese currency appreciation on China and the Rest of World: A global CGE analysis," Journal of Policy Modeling, Elsevier, vol. 35(6), pages 1029-1042.

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    More about this item

    Keywords

    Renminbi undervaluation; real exchange rate misalignment; applied general equilibrium analysis;
    All these keywords.

    JEL classification:

    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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