The macroeconomic impacts of Chinese currency appreciation on China and the rest of world: A global computable general equilibrium analysis

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Yang, Jun; Zhang, Wei; Tokgoz, Simla. 2012. The macroeconomic impacts of Chinese currency appreciation on China and the rest of world: A global computable general equilibrium analysis. IFPRI Discussion Paper 1178. Washington, DC: International Food Policy Research Institute (IFPRI). https://hdl.handle.net/10568/153856

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There has been contentious debate surrounding the issue of undervaluation of the Chinese Renminbi. Despite continuous international political pressure to appreciate its currency, the Chinese government has resisted significant changes. A key question underlining the debate is whether a Renminbi appreciation would deliver substantial gains for exports and employment as the United States has argued or a significant slowdown of Chinese economy as feared by the Chinese government, and if so to what extent. This paper analyzes the ex-ante, short-term impacts of the Chinese Renminbi appreciation on the Chinese and world economies using the novel approach of modeling nominal exchange rate adjustment in the Global Trade Analysis Project, a global computable general equilibrium model. Scenario results show that the Chinese economy will be affected negatively, with lower real gross domestic product, lower employment rates, and a decline in the trade surplus. Chinese currency appreciation has a positive impact on the GDP of the major countries and regions, but by a small margin. With a higher Chinese exchange rate, trade balances for other trading partner countries, with the exception of the United States, improve.

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