Should Chinese Renminbi be Blamed for Its Trade Surplus? A Structural VAR Approach

Authors


  • The authors wish to thank Paul De Grauwe, David Greenaway, Donald Lien, Shoichi Yamashita, Jinghuan Liu, Chuan Li, Hai Wu and the anonymous referees for their invaluable comments. We would also like to thank staff at SBS and Chinese Academy of Social Sciences for valuable discussions and assistance in data collection, and the Ohira Foundation for financial support to this study.

Abstract

During the recent years, the Renminbi (RMB) exchange rate issue has been at the centre of ongoing debate over the source of global current account imbalance, especially with the United States. The objective of this study is to contribute to the current discussion by providing some new evidence on China’s exchange rate policy and the impacts of RMB devaluation/revaluation on China’s trade balance using a structural vector autoregression (VAR) approach. The results indicate that the dynamic effect of exchange rate on China’s trade balance is still very limited and China’s balance of trade is mainly determined by the world demand and its trade performance, with the latter being a result of its successfully maintained comparative advantage.

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