Is China's Exchange Rate Policy a Form of Trade Protection?

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Title Is China's Exchange Rate Policy a Form of Trade Protection?
Author Makin, Anthony John
Journal Name Business Economics
Editor Robert Crow
Year Published 2009
Place of publication United States
Publisher Palgrave Macmillan
Abstract This paper examines how China's heavily managed exchange rate contributes to its huge trade surplus with its major trading partners, most notably the United States. Based on the distinction between economies' aggregate output and expenditure and on the premise that exchange rates are shared variables, it develops a straightforward framework that shows how exchange rate management by China's central bank affects China's fast growing output, expenditure, employment, and trade balance, while simultaneously influencing these aggregates in its slower growing industrialized trading partners. This framework reveals that under conditions of limited private capital mobility an inflexible yuan yields higher short-run output gains for China at trading partners' expense through a form of ''exchange rate protection.'' At the same time exchange rate misalignment limits China's consumption and hence living standards. A misaligned currency is also shown to bias international saving and investment flows and is central to any explanation of global imbalances.
Peer Reviewed Yes
Published Yes
Alternative URI
Volume 44
Issue Number 2
Page from 80
Page to 86
ISSN 0007-666X
Date Accessioned 2009-11-18
Language en_AU
Faculty Griffith Business School
Subject International Economics and International Finance
Publication Type Journal Articles (Refereed Article)
Publication Type Code c1

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