Appreciating the Renminbi

The World Economy, Forthcoming

CAMA Working Paper Series 30/2010

36 Pages Posted: 9 Oct 2010 Last revised: 13 Oct 2010

See all articles by Rod Tyers

Rod Tyers

Australian National University (ANU) - School of Economics; The University of Western Australia - Department of Economics

Ying Catherine Zhang

The University of Western Australia - UWA Business School

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2010

Abstract

International pressure to revalue China’s currency stems in part from the expectation that rapid economic growth should be associated with an underlying real exchange rate appreciation. This hinges on the Balassa-Samuelson hypothesis, which sees growth as stemming from improvements in traded sector productivity and associated rises in wages and non-traded prices. Yet, despite extraordinary growth after the mid-1990s China’s real exchange rate showed no tendency to appreciate until after 2004. We use a dynamic general equilibrium model to simulate the economy and show that, during this period, trade reforms and a rising national saving rate were offsetting forces in the presence of elastic labour supply. We then examine the possible determinants of the striking transition to real appreciation thereafter, noting mounting evidence that an improved rural terms of trade has tightened China’s labour market. We show that, should the Chinese government bow to international pressure by appreciating the renminbi either via an extraordinary monetary contraction or via export disincentives the consequences would be harmful for both Chinese and global interests.

Keywords: Chinese economy, real exchange rate, economic growth, productivity

JEL Classification: C68, C53, E27, F21, F43, F47, O11

Suggested Citation

Tyers, Rod and Zhang, Ying Catherine, Appreciating the Renminbi (May 1, 2010). The World Economy, Forthcoming; CAMA Working Paper Series 30/2010. Available at SSRN: https://ssrn.com/abstract=1689284

Rod Tyers (Contact Author)

Australian National University (ANU) - School of Economics ( email )

Arndt Building
Australian National University
Canberra, Australian Capital Territory 0200
Australia
61-6-249-5124 (Fax)

The University of Western Australia - Department of Economics ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia
61 8 6488 5632 (Phone)

HOME PAGE: http://www.business.uwa.edu.au/school/staff-profiles?type=profile&dn=cn%3DRodney%20Tyers%2Cou%3DEcon

Ying Catherine Zhang

The University of Western Australia - UWA Business School ( email )

Crawley, Western Australia 6009
Australia

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
56
Abstract Views
728
rank
394,290
PlumX Metrics