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Title:China's Exchange Rate Appreciation in the Light of the Earlier Japanese Experience PDF Logo
Authors:McKinnon, Ronald
Issue Date:2006
Series/Report no.:ZEW Discussion Papers 06-35
Abstract:For creditor countries on the periphery of the dollar standard such as China with current account surpluses, foreign mercantile pressure to appreciate their currencies and become more flexible is misplaced. Just the expectation of variable exchange appreciation seriously disrupts the natural tendency for wage growth to balance productivity growth and thus worsens the (incipient) deflation that China now faces. It could create a zero-interest liquidity trap in financial markets that leaves the central bank helpless to combat future deflation arising out of actual currency appreciation, as with the earlier experience of Japan. Exchange rate appreciation, or the threat of it, causes macroeconomic distress without having any predictable effect on the trade surpluses of creditor economies.
Subjects:exchange rate
current account
China
Japan
JEL:F42
F33
F31
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des ZEW
ZEW Discussion Papers

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