Arbeitspapier
Trade model with an optimal exchange rate motivated by current discussion of a Chinese Renminbi float
We combine a model of combined inter-spatial and inter-temporal trade between countries recently – used by Huang, Whalley and Zhang (2004) to analyze the merits of trade liberalization in services when goods trade is restricted – with a model of foreign exchange rationing due to Clarete and Whalley (1991) in which there is a fixed exchange rate with a surrender requirement for foreign exchange generated by exports. In this model, when services remain unliberalized there is an optimal trade intervention, even in the small open price-taking economy case. Given monetary policy and an endogenously determined premium value on foreign exchange, an optimal setting of the exchange rate can provide the optimal trade intervention. We suggest this model has relevance to the current situation in China where services remain unliberalized and tariff rates are bound in the WTO. Since there is an optimal exchange rate, a move to a free Renminbi float can be welfare worsening. We use numerical simulation methods to explore the properties of the model, since it has no closed form solution. Our analysis provides an intellectual counter argument to those presently advocating a free Renminbi float for China.
- Language
-
Englisch
- Bibliographic citation
-
Series: CESifo Working Paper ; No. 1471
- Classification
-
Wirtschaft
International Economics: General
Foreign Exchange
Neoclassical Models of Trade
- Subject
-
Internationaler Dienstleistungsverkehr
Aussenhandelsliberalisierung
Aussenwirtschaftstheorie
Zwei-Länder-Modell
Zeitökonomik
Allgemeines Gleichgewicht
Wohlfahrtseffekt
Theorie
Wechselkurs
Optimalzoll
Wechselkurssystem
China
- Event
-
Geistige Schöpfung
- (who)
-
Huang, Hui
Wang, Yi
Wang, Yiming
Whalley, John
Zhang, Shunming
- Event
-
Veröffentlichung
- (who)
-
Center for Economic Studies and ifo Institute (CESifo)
- (where)
-
Munich
- (when)
-
2005
- Handle
- Last update
-
10.03.2025, 11:45 AM CET
Data provider
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Object type
- Arbeitspapier
Associated
- Huang, Hui
- Wang, Yi
- Wang, Yiming
- Whalley, John
- Zhang, Shunming
- Center for Economic Studies and ifo Institute (CESifo)
Time of origin
- 2005
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