This study investigates the relationship between the real exchange rate (RER) and economic growth in China applying a cointegrated VAR (CVAR) model. However, in contrast to the assumptions of trade partners, this paper finds that the Chinese economy has not benefited from the lower exchange rate of the RMB, and no direct linkages exist between the RER and growth in the long run. Interestingly, it appears that the Chinese economy is stimulated by the expansion of exports and inflow of foreign capital according to the empirical evidence, which also suggests that the long run equilibrium RER is jointly determined by the foreign trade, foreign reserves and the foreign direct investment. In addition, the 2005 RMB policy reform did not show any significant impact on the RER, but instead contributed to the steady economic growth. It is clear that, after the 2008 world crisis, the RMB exchange rates were largely dependent on the enhancing of the national strength and inflow of foreign capital, rather than the slow increase in foreign trade. As for policy implications, China may insist on the managed floating exchange rate policy making limited adjustments to the currency's daily floating range in response to the pressures from trade partners. JEL Codes: F3, O24, F43, C32

This paper investigates the impact of the US and China's foreign aids to Africa on trade flows between donor and recipient countries. Evidence from the gravity model estimates reveals that the two donors' exports are strengthened by their aids to African partners.Interestingly, China's aid shows a positive effect on its total volume of trade and imports from Africa, while the aid from the US exhibits little impact on the US-Africa total trade and its imports from Africa. A possible explanation for such a difference could be due to the dissimilar national interests of donors in Africa. This study finally suggests that African countries should accelerate the pace of advancing domestic economies and rely less on foreign assistance, in order to establish a fairer and more equal international economic order. JEL Classification: F35, P33

This study investigates the asymmetric unemployment-output tradeoff in the Eurozone.Building upon the augmented Okun's law framework, the relationships between unemployment and output cannot be correctly specified in the static linear, static asymmetric and dynamic linear regressions. By contrast, the nonlinear autoregressive distributed lag (NARDL) model is well-specified and in this case indicates that the nature of Okun's law is asymmetric.For the Eurozone, the NARDL estimates demonstrate that labour markets quickly respond to cyclical outputs in a short period, while the adjustments towards new equilibrium become weak in the long run. Furthermore, the cross-sectional analysis of long run asymmetries indicates that government spending and trade balance are key factors affecting the asymmetric unemployment-output tradeoff. Thus, these results seem to suggest that, in spite of the fact that member states lack monetary sovereignty, flexible application of fiscal reforms or labour market reforms could help to reduce asymmetric effects. JEL Codes: C22, E32, J64.Keywords: unemployment-output tradeoff, nonlinear autoregressive distributed lag (NARDL), asymmetry determinants. * We thank Matthew Greenwood-Nimmo and Hanan Naser for their insightful comments on a previous version. The remaining errors are our own.

This study explores the asymmetric exchange rate exposure of stock returns building upon the capital asset pricing model (CAPM) framework, using monthly returns of Chinese industry indices. In accordance with the existing literature, industry returns are subject to lagged exposure effects, but the asymmetries vary across industries, which could be due to the discrepancies of trade balance and ownership of certain industries. Furthermore, the dynamic multipliers depict that industry returns quickly respond to changes in the exchange rate and correct the disequilibrium within a short time, making the long run exposure to be symmetric or very small. The remaining shocks are mainly explained by the return of market portfolios. This implies that the ongoing restrictions on the RMB daily trading band do indeed protect the Chinese stock market against the effects of currency movements.

This study investigates the exchange rate exposure of Chinese firms at the industry and firm level based on the conventional capital asset pricing model (CAPM) framework. At the industry level, the dynamic conditional correlation MGARCH (DCC MGARCH) estimates demonstrate that the market model and three-factor model are appropriate for exposure measurements, and industry returns are more likely to be exposed to unanticipated changes in the real exchange rate and the trade-weighted effective exchange rate, particularly for manufacturing industries. At the firm level, although the seemingly unrelated regression (SUR) estimates vary across markets, it is apparent that there is a relationship between firm size and exposure effects, which also show that lagged exchange rate changes have significant exposure effects on firm returns. This study finally suggests that non-financial firms should set up special commissions to hedge currency risks of their future cash flows.JEL Codes: C58, F31, G12.Keywords: exchange rate exposure, Chinese firms, industry and firm level, dynamic conditional correlation MGARCH (DCC MGARCH), seemingly unrelated regression (SUR).

This study investigates both the symmetric and asymmetric exchange rate exposures of Chinese financial firms in the context of an accelerated pace of RMB internationalisation. We find that an increasing number of Chinese financial firms are exposed to negative symmetric effects from the change in the trade weighted effective exchange rate. The evidence concerning asymmetries shows that after 2009 negative exchange rate shocks (a weaker RMB) have a stronger effect on exposures than positive shocks(a stronger RMB). Changes in the bilateral exchange rate also have a significant impact on firm returns, given the importance of the USD in the effective exchange rate. Further, the empirical analysis reveals that exchange rate exposures are associated with firm level characteristics including total assets, earnings per share, net cash flows, investment incomes, total liabilities and firm size. Finally, we suggest that domestic and foreign stakeholders need to pay close attention to the movement of the Yuan's exchange rate before it becomes completely convertible.

PurposeThis study investigates the spillover effects between exchange rate changes and stock returns in China. The authors find that no significant interconnections exist between stock returns and exchange rates changes.Design/methodology/approachAlthough the conventional structural VAR (SVAR) approach fails to examine the contemporaneous effects, the Markov switching SVAR model captures the volatile structure of the Chinese financial market. The regime-switching estimates indicate that volatile structure tends to be significant during two financial crisis periods.FindingsNotwithstanding the fact that exchange rate changes cannot Granger-cause stock returns in the long run, its contemporaneous spillover effects on stock returns are found to be statistically significant.Originality/valueThis study aims to shed light on the spillover effects between exchange rate changes and stock returns in China, as the Chinese currency is becoming flexible and China’s stock market has undertaken important reforms. The spillovers between the two markets are of topical importance due to the increasing connections between China and the global economy.

This paper investigates the impact of the US and China's foreign aids to Africa on trade flows between donor and recipient countries. Evidence from the gravity model estimates reveals that the two donors' exports are strengthened by their aids to African partners.Interestingly, China's aid shows a positive effect on its total volume of trade and imports from Africa, while the aid from the US exhibits little impact on the US-Africa total trade and its imports from Africa. A possible explanation for such a difference could be due to the dissimilar national interests of donors in Africa. This study finally suggests that African countries should accelerate the pace of advancing domestic economies and rely less on foreign assistance, in order to establish a fairer and more equal international economic order. JEL Classification: F35, P33