Welfare Implications of Currency Integration: Labor Mobility and Pricing-to-Market

In this paper, we examine the welfare cost of renouncing monetary policy autonomy in a model that includes labor mobility and pricing-to-market (PTM) behavior in firms. We find that renouncing monetary policy autonomy becomes a cost of currency integration when the consumption basket weights differ between candidate countries and when country-specific total factor productivity (TFP) shocks hit economies, even when the union fulfills the classic optimum currency area theory of labor mobility. We also found that a firm's PTM behavior has a significant effect on the welfare implications of currency integration combined with labor mobility. For instance, currency integration does not produce greater welfare losses in the PTM case (where the labor input weights differ across member countries and asymmetric labor disutility shocks occur), although greater welfare losses arise in the case of producer currency pricing.     

Should East Asia’s currencies be pegged to the yen? The role of invoice currency

Growing concern that a dollar peg exposes East Asian economies to fluctuations in the dollar–yen exchange rate has stimulated research on currency basket regimes as alternatives for these economies. However, existing studies have mostly ignored an important characteristic of East Asia, i.e., most of its international trade is invoiced in the U.S. dollars. This paper investigates how the preponderance of dollar invoicing affects optimal currency basket regimes for East Asian economies. I develop a three-country center-periphery sticky-price dynamic stochastic general equilibrium model for the analysis. The model is solved numerically by taking second-order approximations to the policy functions with the expected lifetime utility of households chosen as the welfare criterion. Contrary to the conjecture of existing literature, I show that predominance of dollar invoicing implies that the dollar should receive a smaller weight than suggested by bilateral trade shares between emerging markets in East Asia and the United States. The results hinge on the interaction of different degrees of pass-through implied by the choice of invoice currency and endogenous responses of monetary policies in the center countries.     

国际贸易中计价货币选择的决定因素研究——基于微观视角的局部均衡分析

在既有的基于微观视角的包含两币的局部均衡模型中引入交易货币,发现国际贸易中计价货币选择的决定因素依次为:卖方市场结构、出口品差异化程度、出口国所占目标市场份额、其他出口商的计价策略和汇率的稳定性.在同质性商品的国际贸易中,计价货币的非同质性会导致货币垄断计价.其中,进口方货币的垄断计价地位较为稳定,出口方货币垄断计价情...     

Public Goods,Tax Policies,and Unemployment in LDCs

We build a general equilibrium model of a small open economy characterized by unemployment and producing two privately traded goods and one nontraded public consumption good. The provision of public good is financed with an income tax or an excise tax on the manufactured good or an import tariff. Within this framework, the paper examines the effects of such policies on the country's unemployment ratio and welfare, and it derives the efficiency rules for public good provision for each policy instrument. It shows, among other things, that the private marginal cost of the public good always overstates its social marginal cost in the case of income taxes and may overstate it in the case of an excise tax on the manufactured good or a tariff even if the taxed good and the public good are substitutes in consumption.     

Export Currency Pricing and Fiscal Multipliers

This paper develops a small open economy dynamic stochastic general equilibrium model to study the implications of the use of foreign currency in export pricing for fiscal policy in East Asian economies. The result shows that external currency pricing amplifies the effect of an exogenous government spending shock on output. The impact and cumulative multipliers are larger under external currency pricing. However, the result depends on the government policy regime. When the government allows for a systematic response of government spending to public debt, the multipliers in the medium-term are smaller under external currency pricing.     

Forest endowment,logging restrictions,and China's wood products trade

This paper uses the gravity model to investigate determinants of China's wood products trade from 1995 to 2004. The results suggest that trade partners' forest resource endowment and China's own logging restrictions policy affect its wood products imports and exports. China's exported wood products are shown to be inferior goods while China's imported wood products are labor intensive for the exporting countries. Due to rises in Chinese currency against other major currency, transportation costs, and foreign trade actions, China's wood products exports and imports may slow down. The results may have implications on trade and global forest resource conservation.     

贸易摩擦背景下关税与货币政策反制策略研究

通过将贸易品美元定价约束、外汇噪声交易和关税反制等特征融入两国DSGE模型,文章对贸易摩擦背景下美国进口关税冲击的传导渠道以及中国的关税反制策略与货币应对政策有效性等问题进行了数值分析。研究发现,关税反制措施能够有效地对冲美国加征进口关税对中国实际产出、消费和净出口的消极影响,并有助于抑制人民币实际汇率贬值。若进一步搭配将出口品关税纳入利率调控框架的积极货币政策,对于经济扩张与保持汇率稳定都更加有效。但从长期社会福利角度看,积极货币政策对美国经济也具有明显的正向溢出作用,关税反制则会产生显著的福利转移效应,不采取任何关税与货币应对政策将使中国遭受最大的福利损失。因此,基于"打击最大化、自损最小化"原则,中国应对美国采取坚决有力的关税反击,同时保持货币政策相对中性、克制,以期实现"以战促和"的战略目标。     

Currency Invoicing in Japanese Exports to East Asia: Implications for Yen Internationalization

The present paper examines currency invoicing in Japanese exports to East Asia by applying the pricing-to-market (PTM) theory. The notable aims of the present paper are to: (i) use a number of sample commodities obtained from the data on monthly series of exports based on the nine-digit Harmonized System; and (ii) examine currency invoicing practices of Japanese exporters by making a distinction between the long-run and short-run PTM under the framework of the error-correction model. Contrary to the results of previous reports, our study shows that Japanese exporters of electric machinery tend to stabilize US Dollar (USD)-denominated export prices in the short run in East Asian markets, implying that electric machinery products tend to be invoiced in USD in exports to East Asia. Given the USD-invoicing practices by Japanese electric machinery exporters, it is hard to expect the further use of the Yen in trade transactions because the electric machinery industry plays a major role in facilitating trade and investment between Japan and East Asia.     

On the determinants of exporters' currency pricing: History vs. expectations

The purpose of this paper is to investigate why the choice of invoice currency under exchange rate uncertainty depends not only on expectations but also on history. The analysis is motivated by the fact that the US dollar has historically been the dominant vehicle currency in developing countries. The theoretical analysis is based on an open economy model of monopolistic competition. When the market is competitive enough, the exporting firms tend to set their prices not to deviate from those of the competitors. As a result, a coordination failure can lead the third currency to be a less efficient equilibrium invoice currency. The role of expectations is important in selecting the equilibrium in the static framework. However, in the dynamic model with staggered price-setting, the role of history becomes another key determinant of the equilibrium currency pricing. The role of history may dominate the role of expectations when the firms are myopic, particularly in the competitive local market. It also becomes dominant in the staggered price setting when a fraction of the new price setters are backward-looking. The result suggests the importance of history in explaining why the firm tends to choose the US dollar as vehicle currency. J. Japanese Int. Economies 20 (4) (2006) 548–568.     

Joining the European Monetary Union—Comparing First and Second Generation Open Economy Models

We log-linearise the Dellas and Tavlas (DT) model of monetary union and solve it analytically. We find that the intuition of optimal currency area analysis of DT’s second generation open economy model is essentially the same as that of first generation models. Monetary union results in no welfare loss if its member states are symmetric. However, asymmetry causes loss in welfare both due to the failure of the union policy to deal suitably with a country’s asymmetric shocks and due to an active monetary policy by the union in pursuit of its distinct objectives. The asymmetry in DT is largely due to the differing wage rigidities across countries. JEL Classification Numbers: F41, F42, E4     

Currency Areas and Equilibrium

The standard approach to optimum currency areas clashes with both modern monetary theory and empirical evidence. The present paper sets forth an equilibrium hypothesis that views the national border as the analogue of a policy measure impinging on agents' optimizing behavior.     

Vertical trade and China's export dynamics

This paper examines how China's exports are affected by exchange rate shocks from countries that supply intermediate inputs to China. We build a simple small open economy model with intermediate goods trade to show that due to the intra-regional trade in intermediate goods, a devaluation of other Asian currencies does not necessarily hurt China's exports, as imported intermediate goods could become cheaper. The effect of intermediate goods costs depends critically on the share of intermediate goods used in China's export goods production and the degree of exchange rate pass-through in imported intermediate goods prices. If prices for intermediate goods are not very sticky, the effect through this channel could be large, and China's exports could even benefit. We find that these findings do not depend on China's choice of currency invoicing between the RMB and the US dollar or the choice between fixed and flexible exchange rate regimes.     

The International Transmission of Monetary Policy in a Dollar Pricing Model

This paper analyses the international transmission of monetary policy in the case where all export prices are set in US dollars. “Dollar pricing” implies that the international effects of US monetary shocks are different from those of European shocks because of an asymmetric exchange rate pass-through to import prices. A dollar pricing model can explain the observed asymmetry in the transmission of monetary policy: US monetary policy affects US output more than European monetary policy affects European output. I also show that the current account is an important channel through which monetary policy affects welfare. The paper concludes that under dollar pricing a monetary expansion is a beggar-thy-neighbour policy.     

Renminbi in Ordinary Economies: A Demand‐side Study of Currency Globalization

Most studies of renminbi internationalization focus on the supply side, by examining China's own economic and political conditions. In contrast, this study addresses the demand side of renminbi internationalization, by providing an in‐depth analysis of renminbi use in ordinary foreign economies from both economic and political perspectives, with a particular focus on South Korea, China's next‐door neighbor. The study finds that sustainable indigenous market forces facilitating renminbi use in South Korea remain weak, despite the country's close economic ties with China. This research also shows, however, that the Korean Government has itself recently been able, through its policy measures, to generate new domestic support for greater use of the renminbi. These findings ultimately highlight the significant impact on the internationalization of a currency of the politics in the foreign countries using it.     

Renminbi Internationalization in the New Normal: Progress,Determinants and Policy Discussions

In the present paper we explore the internationalization of the renminbi with reference to the experiences of other monetary powers, and discuss its determinants, prospects and implications for China's development in the “new normal.” Specifically, after summarizing the major progress made thus far, we conduct a regression analysis, showing that economic size and financial conditions are significant determinants of the international currency status, while inertia and other unobserved factors also play important roles. These empirical findings enable us to undertake a scenario analysis focusing on the renminbi's potential to become a global reserve currency. Based on this quantitative research, we then revisit China's policy initiatives designed to promote its currency overseas. In our view, the internationalization of the renminbi, along with financial deepening and liberalization, should be regarded as a means to achieve China's goal of reaching a more sustainable and balanced model of development.     

The sustainability of trade deficits in the presence of endogenous structural breaks: Evidence from the Indian economy

This study examines the long-run relationship between exports and imports of the Indian economy during 1950–51 to 2008–09. Applying unit root test and cointegration technique that allows for endogenously determined structural break in the relationship, the results do not support the existence of any long-run equilibrium relationship between exports and imports and interest payments on net debt for India. Individually exports and imports have multiple breaks clustered roughly around three periods: early and mid seventies – the ‘comfort period’ in the country's balance of payments; 1986–87 that witnessed a sudden jump in exports trend after experiencing a flat trend in the first half of 1980s; and 1997–98 following the East Asian currency crisis. The findings imply that India's macroeconomic policies have not been very effective to ensure sustainability of trade deficit in the long-run and suggest that India is in violation of its international budget constraint.     

Unveiling the true value of across-strait trade: The global value chain approach

Due to the pervasive nature of value chains, an increasing amount of imported intermediate components and raw materials from other countries are entangled in Taiwan's exports to Mainland China. This circumstance leads to odd across-trait bilateral trade amounts and surpluses favorable towards Taiwan. The purposes of this paper are applying Johnson and Noguera (2012) to extricate value-added exports earned by Taiwan from China and Wang, Wei, and Zhu (2013) to decompose Taiwan's gross exports to China into various meaningful components. The two issues are related to trade in value added and value added in trade. Specifically, the former explores the value added embedded in the source country's exports to the absorbing country as final demand, regardless of whether those goods are directly or indirectly arriving at the absorbing country. The latter only looks where the value added is originated regardless of where it is ultimately absorbed. We show both concepts aim to measure a country's value added from its trades, but from different angles. Each has its own distinct meaning. They are related, but not completely the same.The inter-country input–output (ICIO) table used in this paper comes from the World Input–Output Database (WIOD) (Timmer et al., 2015 and Dietzenbacher et al., 2013). Empirical results indicate that Taiwan's export values to Mainland China shrink by 64.3% when bilateral trades are measured in value-added terms. Furthermore, Taiwan's trade surplus toward China also decreases by 65.2% under this measure. From the viewpoint of value added in trade, the share of value added in Taiwan's gross exports to China continued to decrease and reached 50.9% in 2011, while the components of foreign value added and double counted terms kept growing in recent years.     

A suggested reformulation of the theory of optimal currency areas

In contrast to conventional analyses of monetary union between two particular countries or sets of countries, this paper treats the possible expansion of a given currency area as a continuous variable ranging from zero to one; zero if there is no expansion and one if all sources of imports and competition in trade are included in the union. The optimal order in which new members are admitted to the union then becomes a central aspect of the problem. Along with other advantages, this approach makes it easier to defend the argument that many nations are too small for form optimal currency areas. The demands upon the origin of the shocks, factor mobility, and political organization are smaller.     

Do High-technology Exports Cause More Technology Spillover in China？

The volume of China’s high-technology exports has grown sharply since the implementation of its export promotion strategy "Revitalizing Trade through Science and Technology" in 1999.This paper investigates whether technology spillover effects are greater for hightechnology exports than for primary manufactured goods exports.We present a generalized multi-sector spillover model to identify both between spillover effects from exports towards non-exporters and within-spillover effects among export sectors.Using panel data for 31 provinces in China over the period from 1998 to 2005,we find that although high-technology export sectors have higher productivity compared with other sectors,this productivity advantage does not lead to technology spillover to both domestic sectors and other export sectors,and export technology spillover mainly derives from traditional export sectors rather than high-technology export sectors.As such findings can be largely attributed to the fact that China’s high-technology exports depend significantly on processing trade by foreign- invested firms,policy implications are discussed in relation to how to best promote the role of China’s high-technology exports during economic expansion.     

货币错配与通货膨胀目标制的不可行性：针对我国现实

现阶段我国正面临人民币汇率稳定与物价稳定的"两难冲突",国内外一些学者主张我国应该采用通货膨胀目标制。从货币错配的角度探讨通货膨胀目标制在我国的可行性表明,由于存在较严重的货币错配及特殊的国情,现阶段我国尚不具备实行通货膨胀目标制的条件,短期内,通货膨胀目标制在我国并不具有可行性,货币政策适合以货币供应数量和价格作为混合使用的政策调控目标。