Willem Thorbecke

How Would an Appreciation of the Renminbi and Other East Asian Currencies Affect China's Exports?

Chinas global current account surplus equaled 9% of Chinese GDP in 2006 and 11% of GDP in 2007. Many argue that a renminbi appreciation would help to rebalance Chinas trade. Using a panel dataset including Chinas exports to 33 countries we find that a 10% renminbi (RMB) appreciation would reduce ordinary exports by 12% and processed exports by less than 4%. A 10% appreciation of all other East Asian currencies would reduce processed exports by 6%. A 10% appreciation throughout the region would reduce processed exports by 10%. Since ordinary exports tend to be simple, labor-intensive goods while processed exports are sophisticated, capital-intensive goods, a generalized appreciation in East Asia would generate more expenditure-switching towards US and European goods and contribute more to resolving global imbalances than an appreciation of the RMB or of other Asian currencies alone.

How Would an Appreciation of the Renminbi Affect the U.S. Trade Deficit with China

The U.S. trade deficit with China exceeded

The effect of changes in the federal funds rate target on stock prices in the 1970s

200 billion in 2005. Many blame these imbalances on the value of the renminbi. This paper investigates how an appreciation of the RMB would affect the U.S. trade balance with China. Johansen MLE and dynamic OLS results indicate that the long run real exchange rate coefficients for nominal exports and imports between China and the U.S. equal approximately unity, implying that the true price elasticities of demand are higher. In addition, many believe that a Chinese revaluation will lead to a generalized appreciation of Asian currencies that could substantially impact Chinas processed exports. Thus an appreciation of the renminbi would help to rebalance trade between China and the U.S.

THE EFFECT OF EXCHANGE RATE CHANGES ON CHINA'S LABOUR-INTENSIVE MANUFACTURING EXPORTS

Abstract We examine the effect of monetary policy on the stock market during the period 3efore the change in Federal Reserve operating procedures in October 1979. We do this by investigating how changes in the federal funds rate target during the 1974–1979 period affected stock prices. This period was unique because the Federal Reserve controlled its operating instrument, the federal funds rate, so closely that market participants were able to discern a change in the target on the day it occurred. We find that increases (decreases) in the funds rate target lowered (raised) stock prices. This provides evidence of a liquidity effect for the period before October 1979.

The Effect of Exchange Rate Changes on Trade in East Asia

Chinese policymakers have resisted calls for faster renminbi appreciation partly because they fear it will reduce low technology exports. We investigate this issue using a panel data set including Chinas exports of labor-intensive goods to 30 countries. We find that an appreciation of the RMB would substantially reduce Chinas exports of clothing, furniture, and footwear. We also find that an increase in foreign income, an increase in the Chinese capital stock, and an appreciation among Chinas competitors would raise Chinas exports. Since Europe is the second leading exporter of labor-intensive manufactures behind China, these results indicate that the large appreciation of the euro relative to the RMB since 2001 has crowded out European exports.

Why deficit news affects interest rates

This paper considers how exchange rates affect East Asian trade. The evidence indicates that exports produced within regional production networks depend on exchange rates throughout the region while labour-intensive exports depend on exchange rates in the exporting country. These results make sense since the majority of the value-added of processed exports come from imported parts and components while most of the value-added of labour-intensive exports comes from the domestic economy. Recent findings also indicate that imbalances between China and the US are a major outlier and that an appreciation of the Chinese yuan (CNY) is necessary to reduce these imbalances.

The effect of monetary policy on bank lending in Turkey

Abstract This article provides evidence on the relationship between budget deficits and interest rates. Wachtel and Young have demonstrated that announcements of larger deficits have raised interest rates. They offered three explanations for this: Agents expected larger deficits to crowd out private spending and raise real rates; they expected, according to the neo-Ricardian model, that government spending increases would raise interest rates; or they expected larger deficits to be monetized and cause inflation. Here evidence from exchange rates and government spending changes is used to demonstrate that financial markets expected deficits do crowd out investment and net exports, raising real interest rates and the dollar.

The federal funds rate and the arbitrage pricing theory: Evidence that monetary policy matters

This paper investigates how monetary policy affects bank lending in Turkey. Kashyap and Stein (2000) show that if contractionary monetary policy affects the supply of bank loans, it will reduce lending more at banks with less liquid balance sheets. Here, it is found that this is true in Turkey, indicating that there is a lending channel of monetary transmission there.

Monetary Policy, Stock Returns, and the Role of Credit in the Transmission of Monetary Policy

Abstract Macroeconomists disagree concerning whether monetary policy affects real variables. Recently, Bernanke and Blinder have presented evidence that the federal funds rate is a good indicator of monetary policy and that it forecasts real variables well. Here we use a nonlinear seemingly unrelated regression technique to demonstrate that the funds rate is a priced factor in the arbitrage pricing model and that unexpected increases (decreases) in the funds rate lower (raise) stock prices. This provides evidence from a different data set using a different methodology corroborating Bernanke and Blinders finding that monetary policy working through the funds rate affects real activity.

Promoting Learning and Industrial Upgrading in ASEAN Countries

We use a multi-factor asset pricing model to investigate whether fluctuations in industry stock returns are due to industry stock returns are due to industry-specific shocks or to monetary and other macroeconomic factors. We find that common factors explain a substantial portion of the variation in stock returns, indicating that economic fluctuations are not due to industry-specific factors alone. We also find that disinflationary policy benefits large but not small firms. These results have mixed implications for the view that credit market frictions propagate monetary shocks.