An Investigation of China‐U.S. Bilateral Trade and Exchange Rate Changes Using the Autoregressive Distributed Lag Model

Abstract

This paper examines how China's bilateral trade with the U.S. responds to exchange rate changes of the real Chinese yuan against the U.S. dollar using annual data covering the period 1985 to 2014. The short‐run dynamics of the China‐U.S. trade balance vs. the yuan's depreciation is examined through the S‐curve and J‐curve effects, and the long‐run relationship is established using the autoregressive distributed lag model. The paper found evidence of the S‐curve but not of the J‐curve in the short‐run although the J‐curve effect is found to be present in the long‐run. China's bilateral ratio of exports to imports with the U.S. is found to have an inelastic response to the yuan's exchange rate change against the U.S. dollar in the short‐run, but in the long‐run, it has the expected elastic response. Compared with the influence of the Yuan‐U.S. dollar exchange rate change and China's real income, U.S. real GDP has the largest impact on China‐U.S. bilateral trade relations in the long‐run. Additionally, the structural break in the data series in 2008 from the Great Recession had a small but significant short‐term effect on the bilateral trade between the two nations. Following an exchange rate shock, the deviation of China's trade ratio from its long‐run level takes less than 2 years to converge.

The Impacts of the Dollar-Renminbi Exchange Rate Misalignment on the China-United States Commodity Trade: An Asymmetric Analysis

“…As it is common in the related literature (see eg. Bahmani-Oskooee and Ardalani, 2006 ;Hurley and Papanikolaou, 2018), we assume that the level of economic activity or income and the real dollar-renminbi are the two most important determinants of the import and export demand functions. In an attempt to open a new path to this body of literature, we also incorporate a measure of RE misalignment as another determinant of imports and exports at commodity level.…”

Economic Growth, Exchange Rate and Remittance Nexus: Evidence from Africa

“…On the other hand, the prices of exports become less expensive right after the homeland devalues her currency, since homeland firms are paid relatively less at the initial set prices. These seemingly contrary situations only exist in the short run, as the balance of trade-based on the fact that homeland demand for imported products-will decline, while demand for export of the homeland product will increase; see (Badinger 2019;Bahmani-Oskooee and Aftab 2018;Dogru et al 2019;Hurley and Papanikolaou 2018;Ivanovski et al 2020;Sensoy and Tabak 2016).…”