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ID: 116502

Vertical trade and China's export dynamics / Liao, Wei; Shi, Kang; Zhang, Zhiwei

Shi, Kang	Journal Article
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2012.

Summary/Abstract

This paper examines how China's exports are affected by exchange rate shocks from countries that supply intermediate inputs to China. We build a simple small open economy model with intermediate goods trade to show that due to the intra-regional trade in intermediate goods, a devaluation of other Asian currencies does not necessarily hurt China's exports, as imported intermediate goods could become cheaper. The effect of intermediate goods costs depends critically on the share of intermediate goods used in China's export goods production and the degree of exchange rate pass-through in imported intermediate goods prices. If prices for intermediate goods are not very sticky, the effect through this channel could be large, and China's exports could even benefit. We find that these findings do not depend on China's choice of currency invoicing between the RMB and the US dollar or the choice between fixed and flexible exchange rate regimes.

Key Words

Exchange Rates ; Vertical Trade ; Export Dynamics ; Currency Invoicing

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ID: 092531

What accounts for Chinese business cycle? / He, Qing; Chong, Terence Tai-Leung; Shi, Kang

He, Qing	Journal Article
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Publication

2009.

Summary/Abstract

This paper investigates the sources of economic fluctuations in China since its reform that started in 1978. Using the framework of a standard neoclassical open economy model with time-varying frictions (wedge), we study the relative contribution of the efficiency, labor, investment and foreign debt wedges to the business cycles of China. The business accounting procedure suggests that productivity best explains the behavior of aggregate economic variables in China throughout the period of 1978-2006. The labor wedge plays a major role in explaining the movement of labor force. The foreign debt wedge and investment wedge primarily affect the composition of output, but their role in explaining the movement of output is modest. Our results suggest that the focus of government policies should be to combat the problems of inefficient factor utilization and labor market rigidity.

Key Words

Chinese Economy ; Business Cycle Accounting ; Open Economy Model ; Foreign Debt Wedge

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