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Exchange rate reform and its inflationary consequences: an empirical analysis for China

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Abstract:

In examining China's exchange rate policy in the reforming years, the study finds empirical evidence of its long-run inflationary consequences, but the effects appear not to be sizable. In the short run, while changes in the devaluation rate are positively correlated with the increase in the growth rate of inflation, the inflation inertia is also modest. The moderate inflationary cost of devaluations provides some explanation of the smooth transition of exchange rate policy regime in China and the authorities' ability to put more weight on external competitiveness.

Document Type: Research Article

DOI: https://doi.org/10.1080/0003684022000017575

Affiliations: 1: Department of Economics, University of Southampton, SO17 1BJ, UK; Guanghua School of Management, Peking University, China 2: Department of East Asian Studies, Durham University, DH1 3TH, UK

Publication date: 2003-01-01

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