Summary:
The RMB exchange rate has shown continuous appreciation since June 2020 due to China's effective COVID-19 prevention and control measures and stable economic recovery. However, exports have also shown rapid growth. The traditional macroeconomic hypothesis that exchange rate appreciation inhibits exports has therefore been challenged. The weak correlation between exchange rates and exports has attracted widespread attention in recent years (Yang, 2013; Ahmed et al., 2015). The main reason for this phenomenon is that, against the background of global value chains, countries have supply-side relations through the intermediate goods trade. The traditional real effective exchange rate, based on Armington's demand theory, considers only demand-side relations between countries. This exchange rate can no longer accurately reflect the relationship between a country's price competitiveness and its exports: it is misleading in both direction and quantity (Bems and Johnson, 2012). Bems and Johnson (2012, 2015, 2017) build a new model that measures the real effective exchange rate based on the input-output relationship in the global value chains. Ni (2018) extends this model to bilateral exports. This method provides an accurate measure of the changes in the competitiveness of bilateral export prices. We further apply this indicator to make a theoretical measurement and provide a structural decomposition of the real effective exchange rate elasticity of global value chains of bilateral exports. By introducing a third country's exchange rate effect and supply-side linkages, we can correct the quantitative and directional errors that ensue when the traditional exchange rate is used as a measure of relative price competitiveness to explain the relationship with exports. This paper provides two main contributions. First, the research shifts from the revision of traditional exchange rate indicators to the exchange rate elasticity of bilateral exports. This is based on the models of Bems and Johnson (2012, 2015, 2017), Patel et al. (2014), and Ni(2018). It fully considers the supply-side linkages and exchange rate effects of a third country under global value chains. From the perspective of model construction, we measure and analyze the real effective exchange rate elasticity of global value chains of bilateral exports. We do this to explain key phenomena described by recent research, such as the irrelevance of exports and exchange rates, the weakening influence of exchange rate on exports, and even cases in which depreciation reduces exports. Second, we decompose the real effective exchange rate elasticity of global value chains of bilateral exports into three components. The three components caused by relative price changes are as follows: changes in the final product structure, changes in the structure of intermediate products, and changes in the structure of intermediate inputs and value-added substitution. This decomposition aids understanding of the structural factors behind the change in elasticity. We use World Input-Output (WIOD) table data from 2000 to 2014 provided by the WIOD database for calculation. Our conclusions are as follows. First, the absolute value of the real effective exchange rate elasticity of the global value chains of China's exports to major trading partners is between 0.729 and 0.883. The role of exchange rates in weakening exports is less serious than that of traditional exchange rates, and there is no evidence that depreciation reduces exports. The traditional exchange rate does have large errors in both direction and quantity when describing changes in bilateral relative price competitiveness and export relations. Second, the further decomposition of the real effective exchange rate elasticity of global value chains of bilateral exports shows that the contribution of intermediate product structure changes caused by relative price changes to the total elasticity of China's exports to major trading partners has continuously increased. This has occurred alongside China's increasing participation and status in global value chains. We also find in the decomposition that the structural contributions of some countries and regions, such as Japan and the U.S., display similar values and changes. It is therefore necessary to measure the real effective exchange rate elasticity of global value chains of bilateral exports to accurately assess the export trade situation, enhance the efficiency of export trade policy formulation, and correct errors in the traditional exchange rate elasticity measurement. We should pay attention to the changes in the structure of intermediate products for China's exports. In the short term, trade can be transferred by looking for alternative trading partners to calm export fluctuation when a shock occurs. In the long term, the issue still needs to be solved through structural adjustment and policy communication.
彭红枫, 刘海莹. 双边出口全球价值链实际 有效汇率弹性理论测度及解析[J]. 金融研究, 2021, 488(2): 56-74.
PENG Hongfeng, LIU Haiying. Measurement and Analysis of the Real Effective Exchange Rate Elasticity of Global Value Chains of Bilateral Exports. Journal of Financial Research, 2021, 488(2): 56-74.
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