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    Investigating the Effect of Exchange Rate Changes on Transpacific Rebalancing

    Thorbecke, Willem; Komoto, Ginalyn | September 2010
    Abstract
    This paper investigates the role that exchange rate changes can play in rebalancing transpacific trade. It presents evidence from a gravity model indicating that the exports from the People’s Republic of China (PRC) to the United States (US) are a key outlier in the global economy and that imbalances between the PRC and the US have remained large during the financial crisis that began in September 2008. It then reports that an appreciation of the yuan against the dollar would be required to rebalance bilateral trade between the US and the PRC. In the case of multilateral trade between the US and the rest of the world, on the other hand, the evidence indicates that a depreciation of the dollar would not substantially reduce the US global trade deficit. In the case of Asia’s exports, results presented here and elsewhere indicate that: (i) sophisticated exports produced within regional production networks depend on exchange rates throughout the region; (ii) labor-intensive exports from developing Asian countries are strongly influenced by each country’s own exchange rate; (iii) developing Asian countries compete extensively with each other in exports to third markets; (iv) a currency appreciation in developing Asia would increase capital and consumption goods imports; and (v) exchange rate volatility deters parts and components trade in Asia. These findings imply that Asia and the rest of the world would benefit if East Asian currencies could appreciate together against external currencies while maintaining relative currency stability within the region.
    Citation
    Thorbecke, Willem; Komoto, Ginalyn. 2010. Investigating the Effect of Exchange Rate Changes on Transpacific Rebalancing. © Asian Development Bank. http://hdl.handle.net/11540/3835. License: CC BY 3.0 IGO.
    Keywords
    Trade Finance
    Rural Finance
    Regional Development Finance
    Public Financial Management
    Public Finance
    International Finance
    Intergovernmental Finance
    Financial System
    Financial Flows
    Financial Assets
    Finance And Trade
    Trade Finance
    Local Finance
    International Monetary Relations
    Local Finance
    Banks
    Capital Market
    financial statistics
    Foreign trade
    Municipal government
    Metropolitan government
    International banks and banking
    Capital movements
    Central banks and banking
    Bills of exchange
    Swaps
    Banks and banking
    Stock exchanges
    Market
    Exchange
    Balance of trade
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    Citable URI
    http://hdl.handle.net/11540/3835
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    Author
    Thorbecke, Willem
    Komoto, Ginalyn
    Theme
    Finance
    Trade
    Labor Migration
     
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise