China’s Exchange Rate Appreciation in the Light of the Earlier Japanese Experience


McKinnon, Ronald


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URL: http://ub-madoc.bib.uni-mannheim.de/1359
URN: urn:nbn:de:bsz:180-madoc-13593
Document Type: Working paper
Year of publication: 2006
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: F31 F33 F42 ,
Subject headings (SWD): China , Japan , Wechselkurs , Deflation
Abstract: For creditor countries on the periphery of the dollar standard such as China with current account surpluses, foreign mercantile pressure to appreciate their currencies and become more flexible is misplaced. Just the expectation of variable exchange appreciation seriously disrupts the natural tendency for wage growth to balance productivity growth and thus worsens the (incipient) deflation that China now faces. It could create a zero-interest liquidity trap in financial markets that leaves the central bank helpless to combat future deflation arising out of actual currency appreciation, as with the earlier experience of Japan. Exchange rate appreciation, or the threat of it, causes macroeconomic distress without having any predictable effect on the trade surpluses of creditor economies.
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McKinnon, Ronald (2006) China’s Exchange Rate Appreciation in the Light of the Earlier Japanese Experience. Open Access [Working paper]
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