Structural Effects of a Real Exchange Rate Revaluation in China: A CGE Assessment

19 Pages Posted: 26 Nov 2006

See all articles by Dirk Willenbockel

Dirk Willenbockel

University of Sussex - Institute of Development Studies

Date Written: October 2006

Abstract

The misalignment of the Chinese currency exposed by the rapid build-up of China's foreign exchange reserves over the past few years has been the subject of considerable recent debate. Recent econometric studies suggest a Renminbi undervaluation on the order of 10 to 30%. The modest revaluation of July 2005 is widely perceived as insufficient to correct China's balance-of-payments disequilibrium and has not silenced charges that China is engaging in persistent one-sided currency manipulation. Within China there are widespread concerns regarding the adverse employment effects of a major revaluation on labour-intensive export sectors, yet the likely magnitude of these effects remains a controversial issue. The paper aims to shed light on this question by simulating the structural effects of a real exchange rate revaluation that lowers the current account surplus-GDP by 4 percentage-points using a 17-sector computable general equilibrium model of the Chinese economy

Keywords: China, excange rate, undervaluation

JEL Classification: C68, F17, F40

Suggested Citation

Willenbockel, Dirk, Structural Effects of a Real Exchange Rate Revaluation in China: A CGE Assessment (October 2006). Available at SSRN: https://ssrn.com/abstract=945562 or http://dx.doi.org/10.2139/ssrn.945562

Dirk Willenbockel (Contact Author)

University of Sussex - Institute of Development Studies ( email )

Brighton
Falmer, Brighton, East Sussex BN1 9RE
United Kingdom

HOME PAGE: http://www.ids.ac.uk

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