China is the world’s largest exporter and has a fixed nominal exchange to the U.S. dollar. However, China’s real exchange rate, which determines the country’s competitiveness, can change even when the nominal rate is fixed. Plot since 1993 the nominal exchange rate of Yuan per dollar (FRED code: EXCHUS). When did China begin to allow its currency to appreciate on a sustained basis? Add to the graph the real exchange rate (see equation 2 in Chapter 10) by adjusting the Yuan-dollar exchange rate for relative consumer price changes in China (FRED code: CHNCPIALLMINMEI) and the United States (FRED code: CPIAUCSL). (Hint: Divide the U.S. price index by 1.95 to set a common base year of 2005=100 for both price indexes used in the real exchange rate formula,) How has China’s real exchange rate evolved recently? What impact should these changes have on China’s exports?
Answer to relevant QuestionsIn September 1992, a speculative attack compelled the United Kingdom to devalue the British pound versus the German currency (Deutsche Mark). How did monetary policy in both countries influence this outcome? Plot from 1990 ...Provide arguments both for and against the Federal Reserve’s adoption of a target growth rate for M2. What assumptions would be necessary to compute such a target rate? If velocity were constant at 2 while M2 rose from $5 trillion to $6 trillion in a single year, what would happen to nominal GDP? If real GDP rose 3 percent, what would be the level of inflation? In Chapter Data Exploration Problem 2, you plotted the inflation rate together with the gap between the Taylor rule and the federal funds rate. Visually, when the Taylor rule gap was positive, inflation appeared relatively ...Suppose the real interest rate unexpectedly falls in the absence of other economic changes. What would you expect to happen to (a) Consumption,(b) Investment, and (c) Net exports?
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