"Given extensive intervention combined with excessive liquidity, real exchange rate appreciation and economic overheating could follow.
Yet that growth rate is primarily due to the success of non-tradeables such as construction, which are barely affected by exchange rate appreciation.
The International Monetary Fund, meanwhile, said Thursday that many Asian nations needed to tighten monetary policy further, including through greater exchange rate appreciation.
Given that American consumer price inflation is well below that, real exchange rate appreciation has occurred far faster over the past year than has nominal exchange rate appreciation.Mr Chinn provides some nice analysis of this trend.
Well, as Menzie Chinn notes here, there has been a substantial amount of real exchange rate appreciation against the dollar, and this appears to be having some effect on China's trade balance.
The figures suggest that real exchange rate appreciation is having an effect, but one also suspects that structural shifts—higher saving in America and busier consumers in China are also pushing economies toward balance.
Not fast enough for its critics, it should be noted, but as you can see below, the rise in the yuan has been fairly steady and has so far amounted to an appreciation of about 4.6%.Real exchange rate appreciation has two parts, of course nominal appreciation, which we see above, and the relative change in inflation.
What I thought was a little more interesting in his comments was the notion that there's a bit of a trade-off between nominal exchange rate appreciation and inflation, such that China has a limited ability to push up the real value of the yuan by all that much more than it's currently doing.
Regarding sectorial effects, one can highlight four ways in which the real exchange rate appreciation could affect manufacturing sectors performance.
Our main findings indicate that episodes of exchange rate appreciation preceded expectations of further appreciation in the short run, but were marked by depreciations in the long run.
