Macroeconomic Policy, Exchange Rate Regimes and Economic Growth

China has been keeping high economic growth rate since it carried out managed floating exchange rate regimes in 1994, while now begins to face retrenchment pressure brought by the depression of internal and external economy. The establishment of RMB exchange rate regime should take account of the validity of macroeconomic policy, macroeconomic growth and the regional internationalization of RMB.     

The Importance of the Exchange Rate Regime in Limiting Misalignment

This paper explores how the choice of a country’s exchange rate regime may affect exchange rate misalignment for developing and developed countries. A measure of misalignment is obtained by using a panel cointegration vector estimator. This paper finds that for developing countries, an intermediate exchange rate regime (a regime falling somewhere between a pure float and a hard peg) is most effective in preventing exchange rate misalignment. Additionally, the choice of an exchange rate regime as a means to limit misalignment matters for developing countries, but does not seem to matter for developed countries.     

基于汇率错位视角的人民币汇率制度转换概率研究

本文基于汇率错位的视角,运用二元模型对东南亚6国汇率错位幅度与汇率制度转换概率的关系进行实证分析。在此基础上,对人民币汇率制度的转换概率进行研究。得出结论:人民币汇率水平的高低与汇率制度的稳定性有很强的关系,即人民币汇率错位幅度与汇率制度转换概率呈现明显的正相关关系。汇率错位是汇率制度转换的原因,汇率错位幅度越大,汇率制度转换的概率越大。因此,若要维持人民币汇率制度的稳定,保持人民币汇率水平的基本稳定至关重要。就当前来说,人民币汇率制度发生转换的概率不大。     

Real Effective Exchange Rate and Regional Economic Growth in China: Evidence from Provincial Data

Using data for the period 2000–2011, we construct province‐level real effective exchange rate (REER) indices for China and test the effect of REER depreciation on regional economic growth in a generalized method of moments regression framework. Our results show that REER depreciation, in general, promotes regional economic growth, through increasing net exports and lowering FDI costs. After dividing the full sample into coastal and inland subsamples, we find that REER depreciation influences economic growth in inland areas but not in coastal areas. This is due to the fact that the inland areas have more surplus labor or other resources to expand their production capacity when REER depreciation leads to increased world demand. Furthermore, compared to inland areas, processing‐and‐assembly trade comprises a larger share of trade in the coastal areas, where traders import more raw materials and intermediate goods to process and assemble goods. When the exchange rate depreciates, the costs of imported materials and immediate goods increase. In this case, the benefits from REER depreciation in coastal areas are offset to some extent and are thus lower than in inland areas.     

Real Exchange Rate in China：A Long-run Perspective

This paper investigates the RMB exchange rate from a long‐run viewpoint. Whether China's rapid economic growth brought about real exchange rate appreciation between 1975 and 2002 is empirically examined, based on a supply‐side model, the Balassa—Semuelson Hypothesis (BSH). The same test is conducted on Japan, Hong Kong, Korea, Malaysia, Singapore, Thailand, the Philippines, Indonesia and India. Our result indicates that the BSH only exists where the industrial structure has been upgraded and the economy has been successfully transformed from an agricultural economy to a manufacturing economy. Interestingly, China, among those where the BSH does not present, appears to be upgrading its industrial and trade structure. We then try to answer the question of why past rapid growth has no significant relationship with the RMB real exchange rate and what factors are underlying the trend of the RMB real exchange rate. We expect an appreciating trend of RMB real exchange rate in the foreseeable future, presuming that China's industrial upgrading process continues and the factors pertaining to the BSH's prediction, such as rise of wage rates in both tradables and nontradables, become more significant. (Edited by Xiaoming Feng)     

is China＇s Economic Growth Extraordinary or Mediocre？ The Role of the Exchange Rate

Results derived from evaluations using different measures for China＇s economic growth are divergent, especially when the RMB exchange rate has experienced large depreciation. Focusing on the changes in the RMB exchange rate matching the demands of economic development, we offer some plausible explanations for the variations in the evaluation results. The significant gaps between different economic performance evaluation results before the mid-1990s, and evidence from international comparisons of factor productivity indicate that the quality of economic growth in China is different from that of other economies. Evaluation of economic development should take into account both quantitative expansion and qualitative improvement. From this perspective, evaluation results indicate qualitative improvement in the Chinese economy after the mid-1990s.     

Pitfalls in Measuring Exchange Rate Misalignment

We evaluate whether the Renminbi (RMB) is misaligned, relying upon conventional statistical methods of inference. A framework built around the relationship between relative price and relative output levels is used. We find that, once sampling uncertainty and serial correlation are accounted for, there is little statistical evidence that the RMB is undervalued, even though the usual regression point estimates indicate substantial misalignment. The result is robust to various choices of country samples and sample periods, as well as to the inclusion of control variables. We then update the results using the latest vintage of the data to demonstrate how fragile the results are. We find that whatever misalignment we detected in our previous work disappears in this data set.

The Behavior of the Real Exchange Rate Under Fixed and Floating Exchange Rate Regimes

This article investigates the behavior of real exchange rates under fixed and flexible exchange rates. Using data from both the Bretton Woods and the modern floating periods, we decompose real exchange rate movements into components attributable to supply shocks, real demand shocks, monetary shocks, capital flows shocks, and real oil price shocks. Empirical results show that real demand shocks are an important source of real exchange rate movements under both fixed and flexible rates, while monetary shocks are negligible. Supply and oil price shocks seem to be more important under Bretton Woods, while capital flows shocks seem to explain a relatively higher proportion of real exchange rate movements under the modern floating period.     

Foreign Direct Investment and Real Exchange Rate Interlinkages

This paper examines theoretically and empirically the relationship between Foreign Direct Investment and the real exchange rate. It is found that in large countries with freely floating currencies, such as the USA, the UK and Japan, causality runs from the real exchange rate to FDI. These results are consistent with the predictions of models of financial behavior. Causality runs both ways in small countries with fixed or quasi fixed currencies, such as the EU countries. These results are consistent with models, which emphasize on trade integration. It is shown that a weaker euro will not have uniform effects on FDI inflows across the unified Europe.     

汇率、经济增长与流动性过剩——基于经济全球化的考察

改革开放以来我国经济社会发展发生了深刻变化。过去三十年世界经济格局也发生了深刻变化。经济全球化深化了世界各国的经济联系,也创造了一种不稳定的双赢模式。发展中国家和发达国家均在全球产业转移中获得了要素生产力递增的收益。要素生产率递增可能使采取固定汇率的货币经历从高估到低估的转变,全球产业转移支持了发展中国家广泛而持续地保持这一优势,并以经常性项目和资本项目间跨国补偿机制实现了全球经济不稳定的平衡,也创造了全球流动性过剩。     

Productivity and the Euro-Dollar Real Exchange Rate

This paper analyses how productivity differentials between the United States and the euro area drive the euro-dollar real exchange rate. We derive impulse responses from a two-sector new open economy macro (NOEM) model. These are used as sign restrictions to identify a structural vector autoregression. Our results show that the Balassa–Samuelson effect, through traded sector productivity shocks, is less important in explaining the variation in the euro-dollar exchange rate than are demand and nominal shocks. In particular, productivity can explain part of the appreciation of the dollar in the late 1990s only to the extent that it created a boost to aggregate demand in the United States. JEL no. F41, F31     

Longevity,Fertility, and the Real Exchange Rate

We build a simple overlapping generation model to investigate the effect of life expectancy on the real exchange rate where fertility is chosen endogenously. The model reveals that, although the overall effect of life expectancy on the real exchange rate is not certain, longer life expectancy tends to cause the real exchange rate to depreciate by reducing fertility. Fertility thus serves as a mediator in the effect of life expectancy on the real exchange rate. Evidence from 148 economies (1980–2018) shows a statistically significant and robust negative relationship between life expectancy and the real exchange rate. It is estimated that a 1 year increase in life expectancy is associated with a 1.5 percent depreciation in the real exchange rate. The evidence also confirms the mediated effect of fertility. The mediated effect that fertility exerts accounts for 30 percent to 50 percent of the total effect, depending on the real exchange rate index used.