Spillover Effects of Exchange Rates: A Study of the Renminbi

31 Pages Posted: 15 Mar 2012 Last revised: 20 Mar 2012

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 13, 2012

Abstract

This paper estimates the impact of China’s exchange rate changes on exports of competitor countries in third markets, known as the “spillover effect.” Recent theory is used to develop an identification strategy in which competition between China and its developing country competitors in specific products and destinations plays a key role. The variation is used — afforded by disaggregated trade data — across exporters, importers, product, and time to estimate this spillover effect. The results show robust evidence of a statistically and quantitatively significant spillover effect. Estimates suggest that, on average, a 10 percent appreciation of China’s real exchange rate boosts a developing country’s exports of a typical 4-digit Harmonized System (HS) product category to third markets by about 1.5 to 2 percent. The magnitude of the spillover effect varies systematically with product characteristics as implied by theory.

Keywords: exchange rates, exports, China, spillover

JEL Classification: F13, F14, O53

Suggested Citation

Mattoo, Aaditya and Mishra, Prachi and Subramanian, Arvind, Spillover Effects of Exchange Rates: A Study of the Renminbi (March 13, 2012). Peterson Institute for International Economics Working Paper No. 12-4. Available at SSRN: https://ssrn.com/abstract=2021292 or http://dx.doi.org/10.2139/ssrn.2021292

Aaditya Mattoo

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 (Contact Author)

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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