Spillover Effects of Exchange Rates: A Study of the Renminbi

37 Pages Posted: 10 May 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 2012

Abstract

This paper estimates the impact of China's exchange rate changes on exports of competitor countries in third markets, which we call the "spillover effect". We use recent theory to develop an identification strategy in which competition between China and its developing country competitors in specific products and destinations plays a key role. We exploit the variation - afforded by disaggregated trade data - across exporters, importers, product, and time to estimate this spillover effect. We find robust evidence of a statistically and quantitatively significant spillover effect. Our estimates suggest that a 10 percent appreciation of China's real exchange rate boosts on average a developing country's exports of a typical 4-digit HS product category to third markets by about 1.5-2 percent. The magnitude of the spillover effect varies systematically with product characteristics as implied by theory.

Keywords: Exchange Rates, Spillover, Developing Countries, Exchange Rate Adjustments, Spillovers

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 2012). IMF Working Paper No. NO.12/88. Available at SSRN: https://ssrn.com/abstract=2055586

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

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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