| In recent years, China's economy development has had more and more impact on the global economy. The Chinese currency continued to appreciate since 2005, which has had both positive and negative results on Chinese's economy. The Chinese government uses the monetary policy to control the inflation pressure, which could work counter to Chinese exchange rate policy. RMB appreciation also has some effects on the Chinese banking system. Through the Global Trade Analysis Project (GTAP), a global computable general equilibrium model, we analyze how, when there is RMB appreciation, the Chinese exports and imports, and Chinese employment and income inequality react. The model suggests that exchange rate appreciation would reduce the effectiveness of monetary policy, and also have a negative relationship with the employment rate and income inequality. RMB appreciation might have a little positive effect on housing price increases; it's good for real estate investment, but needs to be controlled in case the housing bubble bursts. RMB appreciation should help to keep overall inflation lower, the trade balance between the U.S. and China will only have a small effect by RMB appreciation, and if the currency appreciation is combined with other reforms instead of appreciation alone, that would boost the global economy. If China is able to allow rising real wages in a way that increases domestic consumption, the negative effects of RMB appreciation on employment in China may be offset. |
