Business Intelligence

Does An Undervalued Currency Promote Growth? Evidence From China

Download Now Free registration required

Executive Summary

Whether currency devaluation promotes growth remains an empirically open question. Coexistence of an undervalued currency and the world's largest trade surplus alongside a booming economy makes China a unique case study. Using annual data over 1977-2006 and the relatively recent "Bounds-testing approach" to cointegration and error-correction modeling, the authors estimate a reduced form model to investigate the exchange rate sensitivity of China's real GDP. They find that currency devaluation is contractionary in China.

  • Format: PDF
  • Size: 209.2 KB