Priscilla Liang

The RMB Debate and International Influences on China’s Money and Financial Markets*

Section 2 explores a number of aspects of the debate about China’s exchange rate policy. The focus is not to recommend specific policies but to expose a number of false arguments that have been made in the debate in order to separate out the serious considerations on which discussions should be based. While we argue that the adoption of a floating rate is not a panacea, we suggest that exchange rate adjustments can play a productive role as part of a coordinated policy strategy.

Market Meltdown: Recruiting Qualified Business Faculty.

University business programs have been facing a growing dilemma concerning how to address increasing shortages of doctoral-level faculty. In this study, the authors examine the challenges facing business schools because of the identified shortage, especially in light of pending baby boomer retirements. With the California State University system and its 23 campuses as a case study, the authors used recruitment statistics to illustrate the continuing shortfall in new hire success. The authors identified recruitment challenges and offered recommendations to improve the recruitment of qualified faculty.

Chinese Stocks during 2000–2013: Bubbles and Busts or Fundamentals?

Although the Chinese economy has weathered the recent global financial crisis well, Chinese financial markets performed poorly from late 2007 through the end of our sample period in 2013. This apparent disconnect between measured economic fundamentals and stock market performance has attracted considerable attention. However, it is important also to investigate whether this disconnect is only short-term with macroeconomic variables continuing to have important equilibrium relationships over the longer term. This article uses a multivariate cointegration and vector error correction model to test whether domestic macroeconomic fundamentals are important forces in explaining Chinese stock fluctuations. Test results show that economic factors in China have a long-term equilibrium relationship with stock market performance. Stock prices responded consistently negatively to changes in the real exchange rate during 2000–2013. After the Chinese stock market crashed in 2007, stock variations became more responsive to changes of economic fundamentals suggesting that there had been a bubble. Policy-driven factors, such as bank deposits and bank loans, had strong impacts on stock performance. Real economic factors, such as industrial production and exports, also became significant in explaining Chinese stock returns, but their economic impacts were smaller.

Chapter 9 Global Contagion and the Decoupling Debate

This chapter argues that there are a number of different versions of decoupling hypotheses and that rapid swings in their popularity are due largely to herding in popular mental models and shifts in short-run correlations. It is important to not put too much emphasis on such changes of correlations since these can vary substantially depending on the patterns of shocks. There are substantial differences in the effects of contagion during the current crisis on growth rates of both advanced and emerging economies, including Brazil, Russia, India, and China (the BRICs). Our estimates suggest that while countries like China and India have been able to maintain high growth rates, their short falls from trends have not been greatly smaller than for the United States itself. Thus, their decoupling has not been as great as many popular analyses have suggested.

THE SLOW SPREAD OF THE GLOBAL CRISIS

We argue that the depth and breadth of the spread of the current crisis from the US subprime market across the globe was due more to the buildup of substantial financial vulnerabilities prior to the crisis than to irrational panic during the crisis. We examine how these developments explain the belated recognition of the severity of the crisis and its slow spread through various channels of contagion. We also discuss lessons for policy and research.