This PDF is a lection from a published volume from the National Bureau of Economic Rearch
Volume Title: China's Growing Role in World Trade
Volume Author/Editor: Robert C. Feenstra and Shang-Jin Wei, editors Volume Publisher: University of Chicago Press
Volume ISBN: 0-226-23971-3
Volume URL: www.nber/books/feen07-1蚕子
Conference Date: August 3-4, 2007
Publication Date: March 2010
Chapter Title: China's Current Account and Exchange Rate
Chapter Author: Yin-Wong Cheung, Menzie D. Chinn, Eiji Fujii
Chapter URL: www.nber/chapters/c10461
Chapter pages in book: (231 - 271)
7.1 I ntroduction
China—and Chine economic policy—has loomed large on the global economic stage in recent years. Y et, even as arguments over the normalcy of the Chine trade balance and the value of the Chine currency continue, there is substantial debate in both academic and policy circles surrounding what the determinants of the variables are.
Interestingly, there are very few studies that simultaneously asss the Chine exchange rate and trade/current account balance. This is partly an outcome of the peculiar characteristics of the Chine economy. In this study, we attempt to inform the debate over the interactions between the exchange rate and the current account by recour to two key methodologies. First, we identify the equilibrium real exchange rate from the standpoint of cross- c ountry studies. Second, we attempt to obtain more preci estimates of Chine trade elasticities, both on a multilateral and bilateral (with the United States) basis. In doing so, we hope to transcend the current limited debate bad upon rules of thumb.
Yin- W ong Cheung is a professor of economics at the University of California, Santa Cruz, and a guest professor of economics at the Shandong University. Menzie D. Chinn is professor of public affairs and economics at the Robert M. La Follette School of Public Affairs and the Department of Economics, University of Wisconsin, and a rearch associate of the National Bureau of Economic Rearch. Eiji Fujii is a professor of economics at the Graduate School of Systems and Information Engineering, University of Tsukuba.
We thank the discussant Jeffrey Frankel, Shang- J in Wei, Arthur Kroeber, Xiangming Li, Jaime Marquez, and conference participants for comments and discussion; and Kenneth Chow, Guillaume
Gaulier, Chang- T ai Hsieh and Hiro Ito for providing data. Cheung acknowledges the hospitality of the Hong Kong Institute for Monetary Rearch, where part of this rearch was conducted. Faculty rearch funds of the University of California, Santa Cruz, the Univer-sity of Wisconsin, and Grants- i n- A id for Scientifi c Rearch are gratefully acknowledged.
231
232 Yin-Wong Cheung, Menzie D. Chinn, and Eiji Fujii
To anticipate our results, we obtain veral interesting fi ndings. First, the renminbi (RMB) was substantially below the value predicted by our cross-c ountry estimates (although that conclusion does not survive the advent of revid data). The economic magnitude of the misalignment is substantial—on the order of 50 percent in log terms. However, we also fi nd that the misalignment is typically not statistically signifi cant, in the n of being more than 1 standard error away from the conditional mean. Moreover, substantial revisions to the underlying data provide even more reason to be circumspect about estimates of currency misalignment.
Second, we fi nd that Chine multilateral trade fl ows do respond to rela-tive prices—as reprented by a trade- w eighted exchange rate—but that that relationship is not always precily e前秦苻坚
华为nfc功能stimated. In addition, the direction of effects is different than expected a priori. For instance, we fi nd that Chi-ne ordinary imports ri in respon to a RMB depreciation. However, Chine exports do appear to respond to RMB depreciation in the expected manner, as long as a supply variable is included. So, in this n, Chine trade is not exceptional.
泉州牛肉羹Furthermore, Chine trade with the United States appears to behave in a standard manner—especially after the expansion in the Chine manu-facturing capital stock is accounted for. Thus, the China- U.S. trade balance should respond to real exchange rate and relative income movements in the anticipated manner. However, in neither the ca of multilateral nor bilateral trade fl ows should one expect quantitatively large effects arising from exchange rate changes. And, of cour, our results are not informative with regard to the question of how a change in the RMB U.S. dollar (USD) exchange rate would affect the overall U.S. trade defi cit.
Finally, we highlight the fact that considerable uncertainty surrounds both our estimates of RMB misalignment and the responsiveness of trade fl ows to movements in exchange rates and output levels. In particular, our results for trade elasticities are nsitive to econometric specifi cation, accounting for supply effects, and the inclusion of time trends.
7.2 P lacing Matters in Perspective
A discussion of the Chine economy, and its interaction with the global economy, is necessarily complicated, in large part becau of its recent—and incomplete—transition from a central command economy to a market economy.1
Take, for instance, the proper measure of the exchange rate in both nomi-nal and real terms, the central relative prices in any open macroeconomy.
早恋的利与弊消防板报1. See Cheung, Chinn, and Fujii (2007a) for discussion of various issues related to the trans-formation of the Chine economy.
China’s Current Account and Exchange Rate233
Figure 7.1 depicts the official bilateral value of the Chine currency over the last twenty years. Taking the standard approach in the crisis early warning system literature, one can calculate the extent of exchange rate overvaluation as a deviation from a trend. Adopting this approach in the ca of China would not lead to a very satisfactory result. Consider fi rst what a simple examination of the bilateral real exchange rate between the United States and the RMB implies. In fi gure 7.1, the rate is expresd so higher values constitute a weaker Chine currency. Over the entire sample period, the RMB has experienced a downward trend in value.
However, as with the ca with economies experience transitions from controlled to partially decontrolled capital accounts and from dual to unifi ed exchange rate regimes, there is some dispute over what exchange rate measure to u. In the Chine ca, an argument can be made that, with a portion of transactions taking place at swap rates, the 1994 “mega-d evaluation” was actually better described as a unifi cation of different rates of exchange. Figure 7.2 shows the official rate (the solid line) at which some transactions took place, and a fl oating rate—often called the “swap- m arket rate”—shown with the thick dashed line. Using a transactions- w eighted average of the two rates (called the “adjusted rate”) yields a substantially
234 Yin-Wong Cheung, Menzie D. Chinn, and Eiji Fujii
2. See Fernald, Edison, and Loungani (1999) for a discussion in the context of whether the 1994 “devaluation” caud the 1997 to 1998 currency cris.di fferent profi le for the RMB’s path, with a substantially di fferent (esn-tially fl at) trend, as depicted in fi gure 7.
3.2
The trade- w eighted exchange rate is arguably more relevant. Figure 7.4 depicts the International Monetary Fund’s (IMF)s e ffective exchange rate index (logged) and a linear trend estimated over the available sample of 1986- 2008M09. Following the methodology outlined in Chinn (2000a), Che-ung, Chinn, and Fujii (2009a) test for cointegration of the nominal (trade weighted) exchange rate and the relative price level. We fi nd that there is evi-dence for cointegration of the two variables, with the posited coe fficients. This means that we can u this trend line as a statistically valid indication of the mean value, which the real exchange rate ries reverts to. Interestingly, repeating this procedure for the more recent period yields a 14.2 percent over valuation in 2008M09.
It is obviously an understatement to say that the Chine current and trade accounts have elicited substantial interest in policy and academic circles over the past few years, in part becau of the apparent break in the behavior of the fl车胎爆胎
真有美人鱼吗
ows. Figure 7.5 shows the current account balance expresd in dollar
Fig. 7.2 O fficial and “swap” RMB/USD rate, 1986M01–2007M06
Sources: IMF, International Financial Statistics and Fernald, Edison, and Loungani (1999).
