Currency appreciation and current account adjustment

The Falling Elasticity of Global Trade to Economic Activity: Testing the Demand Channel

“…These counterintuitive findings are already reported in the literature. For instance in the case of China, many papers already highlight the ambiguous net effect of an RMB appreciation on China's price competitiveness, because of the opposite effect on the value added component of Chinese exports and imported intermediate input costs(Cheung, Chinn and Qian (2012);Devereux and Genberg (2007)). For European countriesGiordano and Zollino (2016) andChristodoulopoulu and Tkacevs (2014) found a negative effect of a real appreciation on imports, possibly because the real appreciation make exports more expensive and the country get disengaged from the global value chain with a corresponding decline in imports.…”

Foreign exchange reserves: a new challenge to China

“…One possible reason is a combination of relatively small trade elasticity and the important role of intermediate imports in production. Devereux and genberg (2007) show that in this case, currency appreciation could actually improve the current account. Thus, this economic structure not only causes the PBOC's efforts to reduce trade balances by yuan appreciation to be partially in vain, but also invalidates the commonly believed argument that appreciation will hurt the trade sector in China.…”

The Inefficiency of the Adjustment Mechanism in the Contemporary Global Economy. The Case of the United States and China

“…A depreciation of the domestic currency's rate of exchange triggered by a current account deficit should increase exports and decrease imports, reducing the deficit. Meanwhile, appreciation in surplus countries should lead to a reduction of the surplus (see, e.g., Devereux and Genberg 2007).…”