Economics, Econometrics and Finance
4 years ago

Chinese currency revaluation could lead to significant increase in US prices.

Journal of money credit and banking
Exchange Rate Pass‐Through, Domestic Competition, and Inflation: Evidence from the 2005–08 Revaluation of the Renminbi
Raphael Auer

Paper Summary

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Import competition from China affects U.S. prices significantly. When the Chinese currency was strengthened against the USD from 2005 to 2008, U.S. producers raised their prices by 0.7 on average. This impact was much stronger than changes in prices from other countries due to exchange rate movements. Factors like trade connections, pricing strategies, and demand patterns played a role in this effect. If the Chinese currency were to appreciate significantly, U.S. producer prices would go up noticeably.