Spillover Effects of Exchange Rates: A Study of the Renminbi

IMF Working Papers, March 1, 2012

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The paper estimates the impact of China's exchange rate changes on exports of competitor countries in third markets, termed the "spillover effect".
Uses recent theory to develop an identification strategy where competition between China and its developing country competitors in specific products and destinations plays a key role.
Exploits variation across exporters, importers, product, and time using disaggregated trade data.
Finds robust evidence of a statistically and quantitatively significant spillover effect.

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.

Identification strategy built on recent theoretical developments emphasizing competition between China and developing-country competitors at the product-destination level.
Empirical approach exploits disaggregated trade data variation across:
- exporters,
- importers,
- product, and
- time.

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