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The RMB Debate: Empirical Analysis on the Effects of Exchange Rate Shocks in China and Japan

Kim, Soyoung
Kim, Yoonbai
Date
2014-02-16
Advisor
Type
Working Paper
Degree
Description
Abstract
For a better understanding of the ongoing debates on the RMB, this paper investigates the effects of exchange rate shocks on output and the current account for China and Japan. We use structural vector auto-regression models and find that yen appreciation reduces current account surpluses while having no strong effect on output in Japan. RMB appreciation, on the other hand, has insignificant effect on the current account, although it tends to reduce output in China. For China, dollar pricing with vertical trade integration seems responsible for the insignificant effect on the current account.
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