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Title:What accounts for China's trade balance dynamics? PDF Logo
Authors:Zhang, Yin
Wan, Guanghua
Issue Date:2004
Series/Report no.:Research Paper, UNU-WIDER, United Nations University (UNU) 2004/55
Abstract:This paper proposes a structural VAR model which extends the frameworks of Hoffmaister and Roldós (2001) and Prasad (1999). 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 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’. – China ; trade balance ; real exchange rate ; structural VAR ; Law of One Price
JEL:O53
F40
E0
ISBN:9291906441
Document Type:Working Paper
Appears in Collections:WIDER Research Papers, United Nations University (UNU)

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