Lee Jackson - Final Thesis - Economics - Stanford University

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Figure 4.5: China’s Multilateral and Bilateral (with the U.S.) Trade Balances Figure 4.6: China Gross Savings as a Percentage of GDP Sources: Trading <strong>Economics</strong> (2012) and World Bank (2010) 40
China’s gross savings as a percentage of GDP has been trending higher over the past decade. China’s high savings rate (see Figure 4.6), especially compared to that of the U.S., has fueled the growth of its trade surplus. Whereas in Japan, the decline in savings has been attributed to an aging population, in China, the increase in savings has been attributed to the relative lack of a welfare state. The growth in China’s trade surplus with the U.S. since 2000 is less explained by the appreciation of the RMB against the USD than by the increases in Chinese savings and U.S. spending. Perhaps the most obvious example of an economy with a trade deficit that persists despite a depreciating currency is the U.S. Since 1975, the U.S. has run a trade deficit that generally has grown overtime. Simultaneously, the USD trade-weighted index has weakened by about 40% since 1971 and by more than 50% since its peak in 1985 (FRED, 2012) (see Figure 4.7). Although the widening trade gap has not coincided with a domestic currency appreciation, as traditional economic theorists would expect, the declining trade balance has coincided with a fall in savings. U.S. gross national savings as a percentage of GDP have been falling steadily since at least 1980, as shown in Figure (4.8) (Trading <strong>Economics</strong>, 2012). Moreover, the U.S. personal savings rate reached a peak of 10.9% in 1982, and declined through 2005, the year in which the personal savings rate actually turned negative for a quarter (FRED, 2012) (see Figure 4.9). Through our examination of trade data from Japan, China, and the U.S., we conclude that changes in savings rates have a more predictable impact on an economy’s trade balance than do currency fluctuations. 41
Page 1 and 2: An Analysis of the Appreciation of
Page 3 and 4: 1 Introduction Over the past decade
Page 5 and 6: Our objective is not to determine t
Page 7 and 8: Tradable products generally are def
Page 9 and 10: labor market homogeneity via the ba
Page 11 and 12: Japanese yen (JPY) and the Chinese
Page 13 and 14: level, which has a one-for-one impa
Page 15 and 16: Figure 2.1: Wage Growth Differentia
Page 17 and 18: manufacturing, peaked in 2006 and 2
Page 19 and 20: Figure 2.5: CPI and WPI Comparison
Page 21 and 22: agreements and JVs with domestic fi
Page 23 and 24: the past several months may be a si
Page 25 and 26: 3.1 The International Fisher Effect
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Page 29 and 30: !"#$%&'" the primary mainland bench
Page 31 and 32: the ascent of urban property prices
Page 33 and 34: money inflows when interest rates a
Page 35 and 36: 4 Exchange Rates, Spending Habits,
Page 37 and 38: Figure 4.1: Japan Multilateral Trad
Page 39: has been in decline since the mid-1
Page 43 and 44: Figure 4.9: U.S. Personal Savings R
Page 45 and 46: Figure 5.1: The U.S.’ Role as the
Page 47 and 48: Figure 5.2: Volatility of Nominal E
Page 49 and 50: used to eliminate trade imbalances.
Page 51 and 52: Figure 5.3: The Fleeting 1991 U.S.
Page 53 and 54: domestic asset markets. To avoid a
Page 55 and 56: References Beamish, Paul W. 1993.
Page 57: McVey, Henry H. "Global Macro Trend

Lee Jackson - Final Thesis - Economics - Stanford University

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