Spillover Effects of Exchange Rates: A Study of the Renminbi

43 Pages Posted: 20 Apr 2016

See all articles by Aaditya Mattoo

Aaditya Mattoo

World Bank - Development Research Group (DECRG)

Prachi Mishra

International Monetary Fund (IMF) - Research Department

Arvind Subramanian

International Monetary Fund (IMF); Center for Global Development

Date Written: March 1, 2012

Abstract

This paper estimates how changes in China's exchange rates would affect exports from competitor countries in third-country markets -- in other words, the "spillover effect." The authors use recent theory to develop an identification strategy, with a key role for the competition between China and its developing country competitors in specific products and export destinations. Using disaggregated trade data, they estimate the spillover effect by exploiting the variation across different exporters, importers, products, and time periods. They find a spillover effect that is statistically and quantitatively significant. Their estimates suggest that a 10-percent appreciation of China's real exchange rate boosts a developing country's exports of a typical four-digit Harmonized System product category to third markets by about 1.5 to 2 percent on average. The magnitude of the spillover effect varies systematically with the characteristics of products, such as the extent to which they are differentiated.

Keywords: Debt Markets, Emerging Markets, Economic Theory & Research, Currencies and Exchange Rates, Markets and Market Access

Suggested Citation

Mattoo, Aaditya and Mishra, Prachi and Subramanian, Arvind, Spillover Effects of Exchange Rates: A Study of the Renminbi (March 1, 2012). World Bank Policy Research Working Paper No. 5989. Available at SSRN: https://ssrn.com/abstract=2018163

Aaditya Mattoo (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H Street, N.W.
Room MC 3-327
Washington, DC 20433
United States
202-458-8047 (Phone)
202-676-9810 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/amattoo

Prachi Mishra

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Arvind Subramanian

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Center for Global Development

2055 L St. NW
5th floor
Washington, DC 20036
United States

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