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Determination of Renminbi Equilibrium Exchange Rate, Misalignment, and Official Intervention

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  • Liu Hai Yue
  • Jiang Qiang
  • Tang Ying Kai

Abstract

We use an equilibrium real exchange rates (ERER) model to estimate the equilibrium exchange rate (EER) and hence the misalignment between the EER and actual renminbi (RMB) exchange rate with quarterly data from 1994 to 2012. The effect of various policy changes on this misalignment with a focus on official intervention is then examined. We find that the RMB EER rose 45 percent from 1994 to 2012, mainly due to trade policy and relative technological progress. The central bank’s (the People’s Bank of China) official intervention had quick effect on the misalignment, especially after 2005.

Suggested Citation

  • Liu Hai Yue & Jiang Qiang & Tang Ying Kai, 2016. "Determination of Renminbi Equilibrium Exchange Rate, Misalignment, and Official Intervention," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(2), pages 420-433, February.
    • Handle: RePEc:mes:emfitr:v:52:y:2016:i:2:p:420-433
    DOI: 10.1080/1540496X.2016.1110448
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    Cited by:

    1. Bahmani-Oskooee, Mohsen & Nouira, Ridha, 2021. "The nonlinear ARDL approach and productivity bias hypothesis: Evidence from 68 countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 80-89.
    2. Prabheesh, K.P. & Prakash, Branesh & Vuniivi, Viliame, 2023. "Assessment of Fiji’s exchange rate," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 1282-1305.
    3. Yin-Wong Cheung & Shi He, 2019. "Truths and Myths About RMB Misalignment: A Meta-analysis," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 61(3), pages 464-492, September.
    4. Muhammad Ali Nasir & Mary Leung, 2021. "US trade deficit, a reality check: New evidence incorporating asymmetric and non‐linear effects of exchange rate dynamics," The World Economy, Wiley Blackwell, vol. 44(3), pages 818-836, March.

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