New Estimates of the Equilibrium Exchange Rate: The Case for the Chinese Renminbi
AbstractWe estimate the equilibrium exchange rate (EER) of the Chinese renminbi (RMB) vis-a-vis the U.S. dollar from 1992 to 2008. In contrast to the recent empirical studies on the EER employing a large cross-country analysis, we focus on the supply side real factors in estimating the EER by extending the Yoshikawa (1990) model. To better reflect China's processing exports in the context of growing intra-regional trade in Asia, we incorporate in the empirical analysis the source country breakdown data on import prices and input coefficients of intermediate inputs by constructing an annual new International Input-Output (IIO) table for the period from 1992 to 2008. The results show that the EER of Chinese RMB appreciates sharply from 2005 to 2008, suggesting that the current RMB exchange rate has been substantially undervalued and should be revalued by 65 percent from the year 2000 level. Such sharp appreciation of the EER corresponds to the dramatic increase in China's current account surplus from the mid-2000s, especially against the United States, which is ascribed to the significant improvement of both labor and intermediate input coefficients in China.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal The World Economy.
Volume (Year): 35 (2012)
Issue (Month): 4 (04)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0378-5920
Other versions of this item:
- SATO Kiyotaka & SHIMIZU Junko & Nagendra SHRESTHA & Zhaoyong ZHANG, 2010. "New Estimates of the Equilibrium Exchange Rate: The case for the Chinese renminbi," Discussion papers 10045, Research Institute of Economy, Trade and Industry (RIETI).
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