China's Exchange Rate and International Adjustment in Wages, Prices, and Interest Rates: Japan Deja Vu?

38 Pages Posted: 31 May 2006

See all articles by Ronald McKinnon

Ronald McKinnon

Stanford University, School of Humanities & Sciences, Department of Economics (Deceased); CESifo (Center for Economic Studies and Ifo Institute for Economic Research) (Deceased)

Gunther Schnabl

University of Leipzig - Institute for Economic Policy

Date Written: My 2006

Abstract

China keeps its exchange rate tightly fixed to the dollar. Its productivity growth and trade surplus have been high, and it continues to accumulate large dollar reserves. Many observers take this as evidence that the renminbi is undervalued and should be appreciated to reduce the Chinese trade surplus. We argue that an appreciation of the renminbi need not reduce China's trade surplus but could cause serious deflation in China. To show this, we consider international adjustment between China and the United States from both an asset-market and a labor-market perspective, and compare this to Japan's unsuccessful appreciation of the yen.

Keywords: China, exchange rate, adjustment, assets markets, labour markets

JEL Classification: F15, F31, F33

Suggested Citation

McKinnon, Ronald and Schnabl, Gunther, China's Exchange Rate and International Adjustment in Wages, Prices, and Interest Rates: Japan Deja Vu? (My 2006). CESifo Working Paper Series No. 1720, Available at SSRN: https://ssrn.com/abstract=905503

Ronald McKinnon

Stanford University, School of Humanities & Sciences, Department of Economics (Deceased)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) (Deceased)

Gunther Schnabl (Contact Author)

University of Leipzig - Institute for Economic Policy ( email )

Institute for Economic Policy
Grimmaische Straße 12
Leipzig, 04109
Germany

HOME PAGE: http://www.wifa.uni-leipzig.de/iwp/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
378
Abstract Views
1,689
rank
94,870
PlumX Metrics