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Spillover Effects of Exchange Rates : A Study of the Renminbi

Author/Editor: Arvind Subramanian | Prachi Mishra | Aaditya Mattoo
Authorized for Distribution: March 1, 2012
Electronic Access: Free Full Text (PDF file size is 2,270KB)
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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 estimates the impact of China''s exchange rate changes on exports of competitor countries in third markets, which we call the "spillover effect". We use recent theory to develop an identification strategy in which competition between China and its developing country competitors in specific products and destinations plays a key role. We exploit the variation - afforded by disaggregated trade data - across exporters, importers, product, and time to estimate this spillover effect. We find robust evidence of a statistically and quantitatively significant spillover effect. Our estimates suggest that a 10 percent appreciation of China''s real exchange rate boosts on average a developing country''s exports of a typical 4-digit HS product category to third markets by about 1.5-2 percent. The magnitude of the spillover effect varies systematically with product characteristics as implied by theory.
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Series: Working Paper No. 12/88
Subject(s): Developing countries | Exchange rate adjustments | Exchange rates | Spillovers
Author's keyword(s): Exchange rates | exports | China | spillover
    Published:   March 1, 2012        
    ISBN/ISSN:   9781475502626/1018-5941   Format:   Paper
    Stock No:   WPIEA2012088   Pages:   37
    Price:   US$18.00
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