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Asset Price, the Exchange Rate, and Trade Balances in China: A Sign Restriction VAR Approach

East Asian economic review, 2018-09, Vol.22 (3), p.371-400 [Peer Reviewed Journal]

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Title:
Asset Price, the Exchange Rate, and Trade Balances in China: A Sign Restriction VAR Approach
Author: Kim, Wongi
Subjects: China Trade Balance ; Housing Price ; Real Effective Exchange Rate ; Sign Restriction VAR ; Stock Price
Is Part Of: East Asian economic review, 2018-09, Vol.22 (3), p.371-400
Description: Although asset price is an important factor in determining changes in external balances, no studies have investigated it from the Chinese perspective. In this study, I empirically examine the underlying driving forces of China’s trade balances, particularly the role of asset price and the real exchange rate. To this end, I estimate a sign-restricted structural vector autoregressive model with quarterly time series data for China, using the Bayesian method. The results show that changes in asset price affect China’s trade balances through private consumption and investment. Also, an appreciation of the real exchange rate tends to deteriorate trade balances in China. Furthermore, forecast error variance decomposition results indicate that changes in asset price (stock price and housing price) explain about 20% variability of trade balances, while changes in the real exchange rate can explain about 10%.
Publisher: 대외경제정책연구원
Language: Korean
Identifier: ISSN: 2508-1640
EISSN: 2508-1667
Source: ROAD: Directory of Open Access Scholarly Resources
DOAJ Directory of Open Access Journals

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