Who benefits from China’s coal subsidy policies? A computable partial equilibrium analysis

Using a computable partial equilibrium model with monopolistic competition and based on global coal production, trade and consumption data in 2014, this study simulates the economic and welfare impacts of China’s coal subsidies at the industry level. Simulation results show that, first, the government’s subsidies have greatly promoted China's coal output, but may aggravate the overcapacity in China’s coal industry. Second, China's coal subsidies have significant trade destruction effects and its coal imports fall by more than 20% annually. Third, if considering the environmental cost, China's coal subsidies cause not only huge net welfare loss to China, but also harm to the global environment, thus no country benefits from China's coal subsidies.     

The internal and external equilibrium exchange rate of RMB: 1982–2010

This paper estimates fundamental equilibrium exchange rate of RMB based on internal and external balance of China’s economy. The findings indicate that RMB real exchange rate is overvalued in the period of 1982–1991, but the extent of the undervaluation has an enlarging trend since 2004. Then, we put forward a new theory called “Prior Equilibrium Exchange Rate” and apply it to RMB, finding that real effective exchange rate of RMB need to be appreciated about 20% between 2008 and 2010, and the appreciation range of bilateral nominal exchange rate between RMB and the world’s key currencies depends on the objective functions of the government. Policy implication indicates that decision makers need to refer to equilibrium exchange rate which is derived from different theories and to make great efforts to adjust it towards equilibrium level and establish RMB “Prior Equilibrium Exchange Rate.” Meanwhile, policymakers should implement a potential objective interval system of exchange rate appreciation. The appreciation range of bilateral exchange rate of RMB against USD from 2008 to 2010 may be set between 6% to 10%.     

Interdependencies in the energy–bioenergy–food price systems: A cointegration analysis

The present paper studies the interdependencies between the energy, bioenergy and food prices. We develop a vertically integrated multi-input, multi-output market model with two channels of price transmission: a direct biofuel channel and an indirect input channel. We test the theoretical hypothesis by applying time-series analytical mechanisms to nine major traded agricultural commodity prices, including corn, wheat, rice, sugar, soybeans, cotton, banana, sorghum and tea, along with one weighted average world crude oil price. The data consists of 783 weekly observations extending from January 1994 to December 2008. The empirical findings confirm the theoretical hypothesis that the prices for crude oil and agricultural commodities are interdependent including also commodities not directly used in bioenergy production: an increase in oil price by 1 $/barrel increases the agricultural commodity prices between 0.10 $/tonne and 1.80 $/tonne. Contrary to the theoretical predictions, the indirect input channel of price transmission is found to be small and statistically insignificant.     

A cautionary note in using patterns of shocks to determine optimal exchange rate policy. An exploration of Nepalese and Indian exchange rate relations: 1964–1994

Nepal and India are developing countries in Asia whose (hard) peg has existed for almost forty years as well as no restriction on capital mobility between both countries. However, empirical results suggest that Nepal and India do not face symmetric patterns of shocks and are thus not suitable for a fixed exchange rate under this criteria. One possible explanation may be that the monetary authority plays some role in the short run to reduce the cost of the exchange rate regime. This suggests that some caution should be used in basing optimal exchange rate policy on this single criteria.     

Macroeconomic impacts of China’s foreign exchange reserve accumulation: a vector autoregression analysis using pure-sign-restriction approach

This study employs pure-sign-restriction approach analysing the macroeconomic impacts of foreign reserve accumulation and discusses the foreign exchange sterilization behaviour of the People’s Bank of China (PBoC). Sign restriction analysis shows that the effects of reserve accumulation shock are initially ambiguous on all variables, but later a positive influence only on base money can be observed. With regard to sterilization intervention, the effect is significant even though it degrades gradually over time. In China, the monetary authority actively undertakes sterilization intervention in order to remove the influence of passive release of base money caused by foreign reserve accumulation.     

A model of exchange rate policy: evidence for the US dollar–Greek drachma rate 1975–87

This paper represents an attempt to model movements of the exchange rate between the US dollar and Greek drachma. A stuctural model is set up, and then a reduced-form error correction(EC) speicifcation is derived. On the basis of co-integration test, the results do not support the existence of al long-run equilibrium relationship between the exchange rate and price differential. Furthermore, the instrumental variable estimation of the EC model indicates that the monetary authorities have pursued a short-run anti-inflationary exchange rate poilicy that appreciates the exchange rate in the presence of wage inflation as an attempt to mitigate the depreciating pressures on the domestic currency and thus to ease the adjustment required on Greek producers.     

Investment and the real exchange rate’s profitability channel in Mexico

The paper estimates different versions of an equation for private investment in Mexico during the post-liberalization period 1988–2013, with the aim of studying the operation of the recently discussed real exchange rate’s profitability channel. During this period, the real exchange rate (RER) was broadly positively correlated with the Mexican price/wage ratio and the Mexican/US relative profit margin in the manufacturing sector, particularly so when the RER experienced large fluctuations, before the end of disinflation in the early 2000s. In the estimations, the effect of the profit margin appears to be ‘deeper’, wiping out the effect of the RER when the two variables are included together in the investment equation. From this, the paper argues that the positive effect of the RER on investment, observed in previous studies that omitted the profit margin, reflects indirectly the positive link of the RER with the profit margin, supporting the existence of a profitability channel in Mexico.     

Research on China’s export structure to the US: Analysis based on the US economic growth and exchange rate

Due to the rapid appreciation of RMB, the consistent declining of the US economy and other uncertain factors, China’s export volume to the United States has declined. The paper first chooses six industries to divide them into three groups based on per capita possession of capital, then employs the monthly data from 2001 to 2008 to carry out EG two-step cointegration test, and finally analyzes the impacts of the US economic growth and the exchange rate variability on different export industries. Empirical results show that the labor-intensive industries are most susceptible to fluctuations brought by economic growth and real exchange rate, while those industries with higher per capita possession of capital are less susceptible to external factors. In the short run, the export of labor-intensive products gives an advantage to China’s foreign trade development, but in the long-run, these industries will be affected greatly by various uncertain factors and the advantages of China’s labor-intensive export industries will disappear with the shift of the international division. Therefore, the only way to guarantee the dominant position of China’s foreign trade is to develop capital and technology intensive export industries and upgrade export structure.     

Unconventional monetary policy and the dollar–euro exchange rate: first results from time-series analysis

This article examines the impact on the US dollar–euro (USD–EUR) exchange rate of the unconventional monetary policy conducted by the US Federal Reserve (Fed) and the European Central Bank (ECB). To that end, we make use of time-series analysis to obtain a reasonable long-run and short run representation of the data generation process and use dummy variables to study how announcements about monetary policy changes can affect the USD–EUR exchange rate. Our results indicate that the announcement and subsequent implementation of such measures by the ECB would have caused an appreciation of the dollar, while those by the Fed would have caused a depreciation of the dollar.     

Impact of asset price fluctuation on China’s monetary policy: An empirical analysis based on quarterly data, 1994–2006

The strenuous fluctuation in global asset price in recent years has had a profound impact on the economic and social development of every country. An empirical analysis indicates that asset prices (the stock price index and real estate prices) are important endogenous variables affecting the interest rate reaction function of central bank monetary policy. With expected inflation as a given, each one percentage point rise in output gap will cause a 0.79 percentage point reduction in interest rates by the central bank and each one percentage point rise in real estate price will result in a 2.2 percentage point rise in interest rates. The stock price index does have an influence on the trends in monetary policy, but it is less salient than the impact of housing prices. We also show that monetary policy that employs asset price as an endogenous variable increases the central bank’s control in seeking to attain its objectives. Therefore we suggest that the central bank should make asset price fluctuation an endogenous variable and incorporate it into its forward-looking interest rate rule, in order to facilitate the healthy development of China’s markets for real estate, stocks and derivatives, energy and bulk commodities and maintain rapid, smooth, sustainable and harmonious economic development.     

Testing exchange rate efficiency: the case of euro–dollar

This paper tests the semi‐strong efficiency of the euro–dollar currency market by introducing a simple heuristic test, based on the ‘general‐to‐specific’ methodology and meant to include as two specific sub‐cases the ‘efficient market hypothesis’ (EMH) in the currency market as well as alternative theories implying a time dependent process of propagation of information. According to the results of our nested test, the ‘efficient market hypothesis’ in the euro–dollar currency market is rejected.     

Understanding China’s Foreign Trade Policy: A Literature Review

China has continued to experience rapid growth in its foreign trade since the implementation of its reform and opening-up policies. In recent years, the country has become the world’s largest exporter and second largest importer of goods and commodities. China’s trade policy has also gradually been transforming from protectionism to open trade. This paper aims to provide a comprehensive survey on the literature of China’s trade policy. The review covers (1) export and import policies, (2) tariff and non-tariff barriers, and (3) policy effects and motivations behind the policy design. This paper also reports on important topics and issues that deserve more research attention.     

China’s government finance and food security nexus: a regime switching analysis

This paper is an empirical assessment of the government finance and food security nexus in China from 1978 to 2016. Using autoregressive distributed lag for linear and threshold cointegration, the results suggest that China’s government finance and food security have reinforced each other throughout the reform era when a structural break was allowed in the model. However, the strength of cointegration and Granger causality in the government-led food security link is stronger, hence supporting the state interventionist view that a strong state has played a dominant role in fulfilling national food security in China. China’s government finance and food security changes indicate food sector reform probabilities under fiscal constraint, as regime-switching indicators have delineated the Chinese government’s difficult fiscal periods and the main reforms in the food sector. In practice, this result implies that further policy reforms can be effective for China’s future food security.     

Explosive bubbles in the US–China exchange rate? Evidence from right-tailed unit root tests

In this article we apply novel right-tailed unit root (sup Augmented Dickey-Fuller (SADF) and generalized sup ADF) tests to the China–US exchange rate. The empirical results document that the recent financial crisis in 2008 may be preceded by early warning signs of exuberance. Using the SADF test, evidence of an explosive behavior in the nominal exchange is found from 2005 onwards. This period coincides with both financial reforms in China and early indications of an impending US crisis that both have been reported in the literature. Our findings suggest that such an explosive behavior may be attributable to differences in the relative prices of traded goods. Policy implications are also derived.     

Income distribution dynamics of urban residents: The case of China (1995–2004)

Using a 1995–2004 panel data of Chinese urban residents, we investigate the dynamics of income distribution in cities. According to Kernel estimates of the relative income distribution of Chinese cities, we find that: (1) the national across-city distribution of per capita GDP exhibits an apparent unique-peak distribution in 1995 and an “emerging multiple-peak” one in 2004; (2) for prefecture-level cities, income distribution has evolved to an “apparent multiple-peak” distribution from a unique-peak one; (3) the income distribution of county-level cities maintains a unique-peak curve; (4) most of the income dynamics of urban residents originates from prefecture-and-higher-level cities. We sample three representative provinces and study the urban income dynamics respectively. The analysis suggests that within a single province, urban income distribution evolves from unique-peak to twin-peak curve; while among provinces, income convergence is evident for urban residents. In addition, we measure the incidence of poverty in cities based on our income dynamics analysis, and find that the ratios of people living below absolute poverty line have been decreasing at cities of all levels.     

Econometric analysis of China’s GDP growth and industrial structure

Since the Reform and Opening-up in 1978,China’s economy,society and other fields have developed very rapidly.Economic growth has achieved leapfrog development,and the three industries have achieved great development,but the overall industrial structure needs to be improved.At present,China’s economy has entered the “New Normal”.In order to achieve “Sound and Rapid” economic development,it is imperative to transform the industrial structure.Using econometric analysis and based on China’s economic...     

Has the ‘franc fort’ exchange rate policy affected the inflationary dynamics? Theory and new evidence

Abstract

This paper examines the impact of the ‘franc fort’ policy implemented in France from 1983 on the inflationary dynamics by means of a square root Kalman filter approach. An interesting aspect of the analysis is the evidence that the ‘franc fort’ exchange rate policy had a significant impact on the inflationary dynamics in France through its credibility effects. These results confirm the imported credibility hypothesis according to which the French authorities accelerated the disinflation process by importing the German monetary policy credibility through the ‘hard peg’ of the franc–DM exchange rate. These findings show that inflation dynamics in France began to converge significantly to that in Germany after the implementation of the ‘franc fort’ policy, making more credible the plan for the final transition to the euro. Moreover, this analysis may also reveal much about the nature of potential success of the current initiative of the new member countries now in the process of joining the EU and looking eventually to adopt the euro.     

Location determinant and MNE’s performance: A modeling test in the China’s automobile industry

This paper argues that the location strategy is an important successful condition for multinational enterprise’s investment in China. We conduct a location–performance model for multinationals in China, which is tested using a structural equation modeling approach on a sample of 216 joint ventures of automobile multinational enterprises in China. We find that the relationship between the location determinant and multinational performance is significant and positive, and which is supported by the local partner’s performance.     

The People’s bank of China’s response to the coronavirus pandemic: A quantitative assessment

The People’s Bank of China (PBoC) has implemented numerous measures to cushion the impacts of the COVID-19 health crisis on the Chinese economy. Since the current monetary policy framework features a multi-instrument mix of liquidity tools and pricing signals, we employ a dynamic-factor modelling approach to derive a composite indicator of China’s monetary policy stance. Our quantitative assessment shows that the PBoC’s policy response to the outbreak of the COVID-19 pandemic has been swift and decisive. Specifically, our estimates reveal that the PBoC has implemented novel policy measures to ensure that commercial banks maintain liquidity access and credit provision during the COVID-19 crisis.