Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/107289
Authors: 
Cheung, Yin-Wong
Chinn, Menzie D.
Qian, Xingwang
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 5123
Abstract: 
We examine Chinese-US trade flows over the 1994-2012 period, and find that, in line with the conventional wisdom, the value of China's exports to the US responds negatively to real renminbi (RMB) appreciation, while import responds positively. Further, the combined empirical price effects on exports and imports imply an increase in the real value of the RMB will reduce China's trade balance. The use of alternative exchange rate measures and data on different trade classifications yields additional insights. Firms more subject to market forces exhibit greater price sensitivity. The price elasticity is larger for ordinary exports than for processing exports. Finally, accounting for endogeneity and measurement error matters. Hence, the purging the real exchange rate of the portion responding to policy, or using the deviation of the real exchange rate from the equilibrium level yields a stronger measured effect than when using the unadjusted bilateral exchange rate.
Subjects: 
import
export
elasticity
real exchange rate
processing trade
JEL: 
F12
F41
Document Type: 
Working Paper

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