During the second half of 2007 and early part of 2008 when there were intense inflationary pressures in China, RMB appreciation was advocated as a means of helping to curb inflation. The effectiveness of appreciation in controlling inflation depends on the impact of exchange rate movements on import and domestic prices. Our analysis finds fairly large and speedy exchange rate pass-through (ERPT) to import prices: 50 and 60 percent for the short run and long run, respectively. However, the degree of ERPT decreases along the price chain from upstream to downstream prices. ERPT for consumer prices, the most downstream prices, is much milder and has substantial lags. A 10-percent rise in the nominal effective exchange rate will dampen consumer prices by 1.1 percent within a year, with very little pass-through in the first half year, and by 2.0 percent over the long run. These findings, particularly the ERPT to consumer prices, suggest that RMB appreciation can help to reduce inflationary pressures over the longer term. However, it is unlikely to provide rapid relief to the current round of high inflation because of the long lags in ERPT. The RMB needs to strengthen in effective terms to exert the desired dampening impact on prices. Copyright (c) 2009 Hong Kong Monetary Authority Journal compilation (c) 2009 Institute of World Economics and Politics, Chinese Academy of Social Sciences.
The sharp deceleration in China's economic growth in recent months, as the economy has been weighed down by the collapse in external demand, brought to the fore yet again the question of how important exports are in affecting China's economic performance. Using a provincial-level panel dataset, this paper seeks to quantify the impact of exports on China's economic growth, focusing in particular on the often-neglected knock-on effects of exports on investment, employment, income and consumption. We find that a 10 percentage-point decline in export growth has been associated with a decline of about 2.5 percentage points in GDP growth on average. This is much higher than the estimated direct impact of exports on growth. The spill-over effects from exports to domestic demand and employment are found to be positive and statistically significant, and are particularly sizable in regions with greater trade exposures. Indeed, such secondary effects are found to increase rapidly with the size of exports relative to the economy.
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