An Analysis of Trade Patterns and the Effects of the Real Exchange Rate Movements in East Asia

Choi, Moon Jung; Kim, Geunyoung; Lee, Joo Yong

doi:10.1080/1540496x.2017.1316712

Cited by 5 publications

(2 citation statements)

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“…Theoretically, any nonlinear model can be approximated by a time-varying parameter (TVP) model (Granger, 2008). Given the appeal of TVP models, a few studies regarding exchange rate dynamics have utilized TVP-VAR models to examine the effects and causes of exchange rate movements; see Choi et al (2018), Nasir and Morgan (2018), Zheng et al (2019), Nasir and Vo (2020), and others. However, assuming that all model parameters are time-dependent increases model complexity and may suffer from the "curse of dimensionality" of over-parameterization, which would eventually bias the estimates.…”

Section: Introductionmentioning

confidence: 99%

Economic Uncertainty and Exchange Market Pressure: Evidence From China

Lin

2022

Sage Open

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This paper evaluates the impact of local and external economic uncertainty shocks on China’s exchange market pressure from a time-varying perspective. We first construct a simple behavioral model to provide some economic background for our empirical analysis. The model identifies two channels, namely market sentiment and market demand, through which economic uncertainty has a time-varying impact on exchange market pressure. Notably, we calculate a new exchange market pressure index for China by considering China’s practice. Using the economic policy uncertainty index as a proxy for economic uncertainty and our new estimates of China’s exchange market pressure, we employ a novel TVP-VAR model controlling for over-parameterization to a monthly dataset from January 2001 to October 2020 to analyze the impact of China’s and U.S. economic policy uncertainties on China’s exchange market pressure. Our empirical findings robustly show that an upsurge in U.S. EPU is followed by appreciation pressure of the RMB against the dollar, while a hike in China’s EPU triggers devaluation pressure on the RMB. In addition, the impact of economic policy uncertainty has considerable time variation in magnitude, especially after mid-2011, showing a trade-off mechanism between the effects of domestic and foreign economic uncertainties on China’s exchange market pressure. Moreover, we attribute the time-varying features to the changes in China’s dependence on the U.S. and in the exchange rate flexibility. Finally, China should further improve the exchange rate flexibility, reduce its dependence on the U.S. and develop a more diversified currency basket in the exchange rate formation mechanism. JEL: F31 C50 E70

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Section: Introductionmentioning

confidence: 99%

Economic Uncertainty and Exchange Market Pressure: Evidence From China

Lin

2022

Sage Open

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“…The United Nations and the European Union argued that fixed and artificially-revalued exchange rates have a negative impact on the competitiveness of North American and European Exports. They pressured China and the International Monetary Fund to play a crucial role in the decision of China's monetary authority (Choi et al, 2018). In these circumstances, Chinese monetary authorities have appreciated their currency by 18.6 % in real effective terms and 16% in nominal terms against the US dollar during 2005-2008.…”

Section: Introductionmentioning

confidence: 99%

The Impact of China Exchange Rate Policy on its Trading Partners Evidence Based on the GVAR Model

Abbas¹,

Nguyen²,

Yanfu³

et al. 2020

Preprint

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This study is designed to investigate the impact of China exchange rate policy on its trading partners by using a country multi-dataset GVAR model. Our model includes samples of 30 countries, six from high-income, six from middle-income and eighteen from low-income countries. This study used annual time series data over the period 1992 to 2017. We constructed currency misalignment index and it provided some interesting features about the currency undervaluation and overvaluation. The results of the currency misalignment shows that China’s Renminbi is structurally more undervalued over the sample period as compared to other countries, and fluctuation in major currencies effects the global trade around the world. The overall empirical results of the GVAR model indicate that RMB undervaluation affects the trade pattern and macroeconomic performance of China’s trading partners. Overall, China’s exchange rate undervaluation has mixed effects on trading partner’s GDP, exports and imports. The devaluation of China’s RMB efficiently stimulated China’s exports and reduced imports. While, in some countries, this effect is reverse, the RMB undervaluation increases the GDP of partner countries and also increases their exports to China. The results confirm the strong and leading role of the Chinese Renminbi in the global trade.

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