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China: Sources of Real Exchange Rate Fluctuations
Author:
Ms. Tao Wang
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Series:
IMF Working Papers
Volume/Issue:
Volume 2004: Issue 018
Language:
English
Publication Date:
01 Feb 2004
DOI:
https://doi.org/10.5089/9781451843675.001
ISBN:
9781451843675
ISSN:
1018-5941
Pages:
23
Keywords:
WP; exchange rate; supply shock; demand shock; real exchange rate; China; structural VAR; exchange rate movement; movements of the RMB; demand and supply supply shock; equilibrium exchange rate; nominal shock; Real exchange rates; Real effective exchange rates; Exchange rate arrangements; Exchange rates; Supply shocks; Caribbean
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund