526 research outputs found
Exchange Rate or Wage Changes in International Adjustment? Japan and China versus the United States
Under the world dollar standard, a discrete appreciation by a dollar creditor country of the United States, such as China or Japan, has no predictable effect on its trade surplus. Currency appreciation by the creditor country will slow its economic growth and eventually cause deflation but cannot compensate for a savinginvestment imbalance in the United States. Under a fixed exchange rate, however, differential adjustment in the rate of growth of money wages will more accurately reflect international differences in productivity growth. International competitiveness will be better balanced between high-growth and low-growth economies, as between Japan and the U.S. from in 1950 to 1971 and China and the U.S. from 1994 to 2005, when the peripheral country?s dollar exchange rate is fixed so that its wage growth better reflects its higher productivity growth. The qualified case for China moving toward greater flexibility in the form of a very narrow band for the yuan/dollar exchange rate, as a way of decentralizing foreign exchange transacting, is discussed. --exchange rate,dollar standard,trade balance,China,Japan
China's Exchange Rate Appreciation in the Light of the Earlier Japanese Experience
For creditor countries on the periphery of the dollar standard such as China with current account surpluses, foreign mercantile pressure to appreciate their currencies and become more flexible is misplaced. Just the expectation of variable exchange appreciation seriously disrupts the natural tendency for wage growth to balance productivity growth and thus worsens the (incipient) deflation that China now faces. It could create a zero-interest liquidity trap in financial markets that leaves the central bank helpless to combat future deflation arising out of actual currency appreciation, as with the earlier experience of Japan. Exchange rate appreciation, or the threat of it, causes macroeconomic distress without having any predictable effect on the trade surpluses of creditor economies. --exchange rate,current account,China,Japan
The International Dollar Standard and the Sustainability of the U.S. Current Account Deficit
macroeconomics, International Dollar Standard, Dollar Standard, Sustainability, U.S. Current Account Deficit
The Return to Soft Dollar Pegging in East Asia. Mitigating Conflicted Virtue
Before the 1997-98 crisis, the East Asian economiesâexcept for Japanâinformally pegged their currencies to the dollar. These soft pegs made them vulnerable to a depreciating yen thereby aggravating the crisis. To limit future misalignments, the IMF wants East Asian currencies to float freely. Alternatively, authors have proposed increasing the weight of the yen in East Asian currency baskets. However, dollar pegs are entirely rational from the perspective of each Asian countryâboth to facilitate hedging by merchants and banks against exchange risk, and to help central banks anchor their domestic price levels. Post-crisis, as the East Asian economies transform themselves from being dollar debtors into dollar creditors, they face âconflicted virtueâ: pressure to appreciate their currencies that could lead to a defla-tionary spiral. Rather than undervaluing their currencies to promote exports as is commonly alleged, East Asian governments are trapped into returning toâand then maintainingâsoft dollar pegs.Exchange Rates, Business Cycles, East Asian Dollar Standard, Original Sin, Conflicted Virtue
Chinaâs Exchange Rate and International Adjustment in Wages, Prices, and Interest Rates: Japan DĂ©jĂ Vu?
China keeps its exchange rate tightly fixed to the dollar. Its productivity growth and trade surplus have been high, and it continues to accumulate large dollar reserves. Many observers take this as evidence that the renminbi is undervalued and should be appreciated to reduce the Chinese trade surplus. We argue that an appreciation of the renminbi need not reduce Chinaâs trade surplus but could cause serious deflation in China. To show this, we consider international adjustment between China and the United States from both an asset-market and a labor-market perspective, and compare this to Japanâs unsuccessful appreciation of the yen.China, exchange rate, adjustment, assets markets, labour markets
Chinaâs Exchange Rate Impasse and the Weak U.S. Dollar
Since 2004, China has been backed into a situation where the renminbi is expected to go ever higher against the dollar, and this one-way bet has led to a loss of domestic monetary control. Combined with a more general flight from the U.S. dollar, the resulting monetary explosion in China contributes to the worldwide increase in primary commodity pricesâwith excess liquidity reminiscent of the global inflation generated by the weak dollar in the 1970s.inflation, exchange rates, macro policies, current account imbalances
Exchange Rate or Wage Changes in International Adjustment? Japan and China versus the United States
Under the world dollar standard, a discrete appreciation by a dollar creditor country of the United States, such as China or Japan, has no predictable effect on its trade surplus. Currency appreciation by the creditor country will slow its economic growth and eventually cause deflation but cannot compensate for a saving investment imbalance in the United States. Under a fixed exchange rate, however, differential adjustment in the rate of growth of money wages will more accurately reflect international differences in productivity growth. International competitiveness will be better balanced between high-growth and low-growth economies, as between Japan and the U.S. from in 1950 to 1971 and China and the U.S. from 1994 to 2005, when the peripheral country's dollar exchange rate is fixed so that its wage growth better reflects its higher productivity growth. The qualified case for China moving toward greater flexibility in the form of a very narrow band for the yuan/dollar exchange rate, as a way of decentralizing foreign exchange transacting, is discussed
Chinaâs Exchange Rate Appreciation in the Light of the Earlier Japanese Experience
For creditor countries on the periphery of the dollar standard such as China with current account surpluses, foreign mercantile pressure to appreciate their currencies and become more flexible is misplaced. Just the expectation of variable exchange appreciation seriously disrupts the natural tendency for wage growth to balance productivity growth and thus worsens the (incipient) deflation that China now faces. It could create a zero-interest liquidity trap in financial markets that leaves the central bank helpless to combat future deflation arising out of actual currency appreciation, as with the earlier experience of Japan. Exchange rate appreciation, or the threat of it, causes macroeconomic distress without having any predictable effect on the trade surpluses of creditor economies
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