Rate Policy (Eichengreen and Tong)

The External Impact of China’s Exchange Rate Policy: Evidence from firm level data by Barry Eichengreen and Hui Tong, published by IMF. “This reaction appears to reflect a combination of improvements in general market sentiment and specific trade effects. Expected renminbi appreciation has a positive effect on firms exporting to China but a negative impact on those providing inputs for the country´s processing exports. There is also some evidence that expected renminbi appreciation reduces the valuation of financially-constrained firms, presumably because appreciation implies reduced Chinese purchases securities.”