TY - JOUR
T1 - Correcting China's trade imbalance
T2 - monetary means will not suffice
AU - Zhang, Yin
AU - Wan, Guanghua
N1 - Copyright 2008 Elsevier B.V., All rights reserved.
PY - 2008/5/1
Y1 - 2008/5/1
N2 - This paper proposes a structural VAR model which extends the frameworks of Hoffmaister and Roldós [Hoffmaister, A. W., & Roldós, J. E. (2001). The sources of macroeconomic fluctuations in developing countries: Brazil and Korea. Journal of Macroeconomics, 23, 213-239] and Prasad [Prasad, E.S. (1999). International trade and the business cycle. Economic Journal, 109, 588-606]. The model is then used to analyse the sources of China's trade balance fluctuations in the period of 1985-2000. Efforts are made to distinguish the forces which underlie the long-run trend in trade balance from those with transitory impacts. The effects of four types of shock are examined-the foreign supply shock, the domestic supply shock, the relative demand shock and the nominal shock. Among other findings, two emerge as important. First, the movements in China's trade balance are largely the result of real shocks. Second, the Renminbi is undervalued, yet changes in the exchange rate bear little on the trade balance. Therefore, monetary measures would not suffice to redress China's trade 'imbalance'.
AB - This paper proposes a structural VAR model which extends the frameworks of Hoffmaister and Roldós [Hoffmaister, A. W., & Roldós, J. E. (2001). The sources of macroeconomic fluctuations in developing countries: Brazil and Korea. Journal of Macroeconomics, 23, 213-239] and Prasad [Prasad, E.S. (1999). International trade and the business cycle. Economic Journal, 109, 588-606]. The model is then used to analyse the sources of China's trade balance fluctuations in the period of 1985-2000. Efforts are made to distinguish the forces which underlie the long-run trend in trade balance from those with transitory impacts. The effects of four types of shock are examined-the foreign supply shock, the domestic supply shock, the relative demand shock and the nominal shock. Among other findings, two emerge as important. First, the movements in China's trade balance are largely the result of real shocks. Second, the Renminbi is undervalued, yet changes in the exchange rate bear little on the trade balance. Therefore, monetary measures would not suffice to redress China's trade 'imbalance'.
UR - http://www.scopus.com/inward/record.url?scp=42649114106&partnerID=8YFLogxK
U2 - 10.1016/j.jpolmod.2007.04.011
DO - 10.1016/j.jpolmod.2007.04.011
M3 - Article
AN - SCOPUS:42649114106
SN - 0161-8938
VL - 30
SP - 505
EP - 521
JO - Journal of Policy Modeling
JF - Journal of Policy Modeling
IS - 3
ER -