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China'S Equilibrium Real Exchange Rate: A Counterfactual Analysis

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Author Info
Rod Tyers
Iain Bain
Yongxiang Bu

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Abstract

China's 'equilibrium' real effective exchange rate is explored using an adaptation of the Devarajan-Lewis-Robinson three-good general equilibrium model under a variety of assumptions about the balance of trade. The absence of secondary indices of import and export prices necessitates their construction from trade data. Some undervaluation is suggested in the lead-up to and during the financial crisis, due in part to an extraordinary accumulation of foreign reserves following exchange rate integration in 1994. If, instead, China had run a more typical trade balance prior to the crisis its real effective exchange rate would have been higher by about a tenth. Copyright 2008 The Authors
Journal compilation 2008 Blackwell Publishing Ltd

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0106.2007.00387.x
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Article provided by Blackwell Publishing in its journal Pacific Economic Review.

Volume (Year): 13 (2008)
Issue (Month): 1 (02)
Pages: 17-39
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Handle: RePEc:bla:pacecr:v:13:y:2008:i:1:p:17-39

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Wei, Shang-Jin & Zeckhauser, Richard J., 1998. "Two crises and two Chinas," Japan and the World Economy, Elsevier, vol. 10(3), pages 359-369, July. [Downloadable!] (restricted)
  2. Corden, W Max, 1993. "Exchange Rate Policies for Developing Countries," Economic Journal, Royal Economic Society, vol. 103(416), pages 198-207, January. [Downloadable!] (restricted)
  3. Eswar Prasad & Shang-Jin Wei, 2005. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," NBER Working Papers 11306, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Chou, W. L. & Shih, Y. C., 1998. "The Equilibrium Exchange Rate of the Chinese Renminbi," Journal of Comparative Economics, Elsevier, vol. 26(1), pages 165-174, March. [Downloadable!] (restricted)
  5. John Whalley & Xian Xin, 2006. "China's FDI and Non-FDI Economies and the Sustainability of Future High Chinese Growth," NBER Working Papers 12249, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Ivan Roberts & Rod Tyers, 2003. "China's Exchange Rate Policy: The Case for Greater Flexibility," Asian Economic Journal, East Asian Economic Association, vol. 17(2), pages 155-184, 06. [Downloadable!] (restricted)
  7. Rod Tyers, 2000. "Weathering the Asian Crisis: The Role of China," Finance Working Papers 426, East Asian Bureau of Economic Research. [Downloadable!]
  8. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2005. "Why the renminbi might be overvalued (but probably isn’t)," Proceedings, Federal Reserve Bank of San Francisco. [Downloadable!]
  9. Yongzheng Yang & Rod Tyers, 2001. "The Asian Crisis and Economic Change in China," The Japanese Economic Review, Japanese Economic Association, vol. 52(4), pages 491-510. [Downloadable!] (restricted)
  10. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2004. "Direct Investment, Rising Real Wages and the Absorption of Excess Labor in the Periphery," NBER Working Papers 10626, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
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  1. Rod Tyers & Iain Bain, 2007. "Appreciating the Renminbi," Departmental Working Papers 2007-09, Australian National University, Economics RSPAS. [Downloadable!]
    Other versions:
  2. Rod Tyers & Jane Golley & Iain Bain, 2007. "China'S Real Exchange Rate Puzzle," CAMA Working Papers 2007-14, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
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