Spillover Effects of Exchange Rates: A Study of the Renminbi

By Arvind Subramanian, Prachi Mishra, Aaditya Mattoo

March 1, 2012

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Arvind Subramanian, Prachi Mishra, and Aaditya Mattoo. Spillover Effects of Exchange Rates: A Study of the Renminbi, (USA: International Monetary Fund, 2012) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper estimates the impact of China's exchange rate changes on exports of competitor countries in third markets, which we call the "spillover effect". We use recent theory to develop an identification strategy in which competition between China and its developing country competitors in specific products and destinations plays a key role. We exploit the variation - afforded by disaggregated trade data - across exporters, importers, product, and time to estimate this spillover effect. We find robust evidence of a statistically and quantitatively significant spillover effect. Our estimates suggest that a 10 percent appreciation of China's real exchange rate boosts on average a developing country's exports of a typical 4-digit HS product category to third markets by about 1.5-2 percent. The magnitude of the spillover effect varies systematically with product characteristics as implied by theory.

Subject: Competition, Exchange rates, Exports, Financial markets, Foreign exchange, Imports, International trade, Real exchange rates

Keywords: Asia and Pacific, China, Competition, Developing country, Digit product, Exchange rates, Exports, Importer currency, Importer wrt China, Importer-exporter-product level, Importer-product year level, Imports, Price level, Product time, Real exchange rates, Spillover, Spillover effect, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/088
Stock No:

WPIEA2012088
ISBN:

9781475502626
ISSN:

1018-5941

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