China: Sources of Real Exchange Rate Fluctuations

February 1, 2004

Preview Citation

Format: Chicago

Tao Wang. China: Sources of Real Exchange Rate Fluctuations, (USA: International Monetary Fund, 2004) accessed September 20, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper reviews the evolution of China's real effective exchange rate between 1980 and 2002, and uses a structural vector autoregression model to study the relative importance of different types of macroeconomic shocks for fluctuations in the real exchange rate. The structural decomposition shows that relative real demand and supply shocks account for most of the variations in real exchange rate changes during the estimation period. The paper also finds that supply shocks are as important as nominal shocks in accounting for real exchange rate fluctuations, in contrast with other studies that show that, in industrial countries, nominal shocks are more important in explaining real exchange rate fluctuations.

Subject: Economic theory, Exchange rate arrangements, Exchange rates, Foreign exchange, Real effective exchange rates, Real exchange rates, Supply shocks

Keywords: Caribbean, China, Demand and supply supply shock, Demand shock, Equilibrium exchange rate, Exchange rate, Exchange rate arrangements, Exchange rate movement, Exchange rates, Movements of the RMB, Nominal shock, Real effective exchange rates, Real exchange rate, Real exchange rates, Structural VAR, Supply shock, Supply shocks, WP

Publication Details

Pages:

23
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/018
Stock No:

WPIEA0182004
ISBN:

9781451843675
ISSN:

1018-5941

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