CoPS/IMPACT Working Paper Number G-192

Title: Will an Appreciation of the Renminbi Rebalance the Global Economy? A Dynamic Financial CGE Analysis

Authors: Jingliang Xiao and Glyn Wittwer

Abstract

We use a dynamic CGE model of China with a financial module and sectoral detail to examine the real and nominal impacts of a nominal exchange rate appreciation alone, fiscal policy alone and a combined fiscal and monetary package to redress China's external imbalance. The exchange rate policy alone is ineffective in both the short run and long run at reducing China's current account surplus. Fiscal policy is less effective than a combination of fiscal and monetary policy in reducing the surplus.

JEL classification: D58, E52, E62, F31.

Keywords: dynamic financial CGE, foreign reserves, trade surplus, monetary policy, fiscal policy

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