A Tale of Two Surplus Countries: China and Germany

33 Pages Posted: 25 Jul 2019

See all articles by Yin-Wong Cheung

Yin-Wong Cheung

City University of Hong Kong - Department of Economics & Finance; University of California, Santa Cruz - Department of Economics; University of California at Santa Cruz - Department of Economics

Sven Steinkamp

Universität Osnabrück - Institute of Empirical Economic Research

Frank Westermann

Universität Osnabrück - Institute of Empirical Economic Research

Date Written: 2019

Abstract

We analyze current account imbalances through the lens of the two largest surplus countries; China and Germany. We observe two striking patterns visible since the 2007/8 Global Financial Crisis. First, while China has been gradually reducing its current account surplus, Germany's surplus has continued to increase throughout and after the crisis. Second, for these two countries, there is a remarkable reversal in the patterns of exchange rate misalignment: China's currency has turned from being undervalued to overvalued, Germany's currency has erased its level of overvaluation and become undervalued. Our empirical analyses show that the current account balances of these two countries are quite well explained by currency misalignment, common economic factors, and country-specific factors. Furthermore, we highlight the global financial crisis effects and, for Germany, the importance of differentiating balances against euro and non-euro countries.

Keywords: currency misalignment, current account surplus, global imbalances, global financial crisis

JEL Classification: F150, F310, F320

Suggested Citation

Cheung, Yin-Wong and Steinkamp, Sven and Westermann, Frank, A Tale of Two Surplus Countries: China and Germany (2019). CESifo Working Paper No. 7669. Available at SSRN: https://ssrn.com/abstract=3422251

Yin-Wong Cheung (Contact Author)

City University of Hong Kong - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

University of California, Santa Cruz - Department of Economics ( email )

435 Engineering 2
Santa Cruz, CA 95064
United States
831-459-4247 (Phone)
831-459-5077 (Fax)

University of California at Santa Cruz - Department of Economics ( email )

1156 High Street
Santa Cruz, CA 95064
United States

Sven Steinkamp

Universität Osnabrück - Institute of Empirical Economic Research ( email )

Barbarastr. 12
Osnabrueck, 49076
Germany

Frank Westermann

Universität Osnabrück - Institute of Empirical Economic Research ( email )

Barbarastr. 12
Osnabrueck, 49076
Germany

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