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The Overvaluation of Renminbi Undervaluation

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Author Info
Yin-Wong Cheung ()
Menzie D. Chinn ()
Eiji Fujii ()

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Abstract

We evaluate whether the Renminbi (RMB) is misaligned, relying upon conventional statistical methods of inference. A framework built around the relationship between relative price and relative output levels is used. We find that, once sampling uncertainty and serial correlation are accounted for, there is little statistical evidence that the RMB is undervalued. The result is robust to various choices of country samples and sample periods, as well as to the inclusion of control variables.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1918.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_1918

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Related research
Keywords: absolute purchasing power parity; exchange rates; real income; capital controls; currency misalignment;

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Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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. Jeffrey Frankel, 2006. "On the Yuan: The Choice between Adjustment under a Fixed Exchange Rate and Adjustment under a Flexible Rate," CESifo Economic Studies, Oxford University Press, vol. 52(2), pages 246-275, June. [Downloadable!] (restricted)
  2. Chinn, Menzie D. & Prasad, Eswar S., 2003. "Medium-term determinants of current accounts in industrial and developing countries: an empirical exploration," Journal of International Economics, Elsevier, vol. 59(1), pages 47-76, January. [Downloadable!] (restricted)
    Other versions:
  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)
    Other versions:
  4. Steven Vincent Dunaway & Xiangming Li, 2005. "Estimating China's "Equilibrium" Real Exchange Rate," IMF Working Papers 05/202, International Monetary Fund. [Downloadable!]
  5. Menzie D. Chinn & Hiro Ito, 2005. "What Matters for Financial Development? Capital Controls, Institutions, and Interactions," NBER Working Papers 11370, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 1999. "A new database on financial development and structure," Policy Research Working Paper Series 2146, The World Bank. [Downloadable!]
  7. Jose De Gregorio & Holger C. Wolf, 1994. "Terms of Trade, Productivity, and the Real Exchange Rate," NBER Working Papers 4807, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Steven Vincent Dunaway & Lamin Leigh & Xiangming Li, 2006. "How Robust are Estimates of Equilibrium Real Exchange Rates: The Case of China," IMF Working Papers 06/220, International Monetary Fund. [Downloadable!]
  9. Zhang, Zhichao, 2001. "Real Exchange Rate Misalignment in China: An Empirical Investigation," Journal of Comparative Economics, Elsevier, vol. 29(1), pages 80-94, March. [Downloadable!] (restricted)
  10. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June. [Downloadable!] (restricted)
  11. Virginie Coudert & Cecile Couharde, 2005. "Real Equilibrium Exchange Rate in China," Working Papers 2005-01, CEPII research center. [Downloadable!]
  12. Menzie David Chinn, 1998. "The usual suspects? Productivity and demand shocks and Asia-Pacific real exchange rates," Working Papers 31, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
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  13. Hsieh, David A., 1982. "The determination of the real exchange rate : The productivity approach," Journal of International Economics, Elsevier, vol. 12(3-4), pages 355-362, May. [Downloadable!] (restricted)
  14. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584. [Downloadable!] (restricted)
  15. Yin-wong Cheung & Menzie D. Chinn & Eiji Fujii, 2006. "The Illusion of Precision and the Role of the Renminbi in Regional Integration," Working Papers 182006, Hong Kong Institute for Monetary Research. [Downloadable!]
  16. Devereux, Michael B, 1999. "Real Exchange Rate Trends and Growth: A Model of East Asia," Review of International Economics, Blackwell Publishing, vol. 7(3), pages 509-21, August.
  17. Matthew B. Canzoneri & Robert E. Cumby & Behzad Diba, 1996. "Relative Labor Productivity and the Real Exchange Rate in the Long Run: Evidence for a Panel of OECD Countries," NBER Working Papers 5676, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  18. Fernald, John & Edison, Hali & Loungani, Prakash, 1999. "Was China the first domino? Assessing links between China and other Asian economies," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 515-535, August. [Downloadable!] (restricted)
  19. Michael Funke & Jörg Rahn, 2005. "Just how Undervalued is the Chinese Renminbi," Quantitative Macroeconomics Working Papers 20504, Hamburg University, Department of Economics. [Downloadable!]
    Other versions:
  20. MD. Chinn, 2000. "Three measures of East Asian currency evaluation," Contemporary Economic Policy, Western Economic Association International, vol. 18(2), pages 205-214, 04. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, 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. Eswar S. Prasad, 2007. "Is the Chinese Growth Miracle Built to Last?," IZA Discussion Papers 2995, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2009. "China's Current Account and Exchange Rate," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  3. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2008. "Pitfalls in Measuring Exchange Rate Misalignment: The Yuan and Other Currencies," NBER Working Papers 14168, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Freitag, Stephan, 2009. "The Endogeneity of Transpacific Trade Imbalances," MPRA Paper 16356, University Library of Munich, Germany. [Downloadable!]
  5. Weber, Sebastian & Wyplosz, Charles, 2009. "Exchange rates during the crisis," Policy Research Working Paper Series 5059, The World Bank. [Downloadable!]
  6. Yin-Wong Cheung & Menzie Chinn & Eiji Fujii, 2009. "Pitfalls in Measuring Exchange Rate Misalignment," Open Economies Review, Springer, vol. 20(2), pages 183-206, April. [Downloadable!] (restricted)
  7. Marc Gronwald & Michael Funke, 2008. "The undisclosed Renminbi Basket: are the markets telling us something about where the Renminbi - US Dollar Exchange Rate is going?," Quantitative Macroeconomics Working Papers 20804, Hamburg University, Department of Economics. [Downloadable!]
  8. Yin-Wong Cheung & Dickson C. Tam & Matthew S. Yiu, 2008. "Does the Chinese interest rate follow the US interest rate?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(1), pages 53-67. [Downloadable!]
    Other versions:
  9. Yin-Wong Cheung & Xingwang Qian, 2009. "The Empirics of China's Outward Direct Investment," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  10. Freund, Caroline & Pierola, Martha Denisse, 2008. "Export surges : the oower of a competitive currency," Policy Research Working Paper Series 4750, The World Bank. [Downloadable!]
  11. John Tatom, 2007. "The US-China Currency Dispute: Is a Rise in the Yuan Necessary, Inevitable or Desirable?," Global Economy Journal, International Trade and Finance Association, vol. 7(3), pages 2. [Downloadable!]
  12. Guonan Ma & Zhou Haiwen, 2009. "China’s evolving external wealth and rising creditor position," BIS Working Papers 286, Bank for International Settlements. [Downloadable!]
  13. Funke, Michael & Gronwald, Marc, 2007. "The Undisclosed Renminbi Basket: Are The Markets Telling Us Something About Where The Renminbi - US Dollar Exchange Rate Is Going?," BOFIT Discussion Papers 20/2007, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
    Other versions:
  14. Tatom, John, 2007. "China currency dispute: is a rise in the yuan inevitable, necessary or desirable?," MPRA Paper 5366, University Library of Munich, Germany. [Downloadable!]
  15. Robert Lafrance, 2008. "China's Exchange Rate Policy: A Survey of the Literature," Discussion Papers 08-5, Bank of Canada. [Downloadable!]
  16. Joshua Aizenman & Jaewoo Lee, 2006. "Financial Versus Monetary Mercantilism-Long-run View of Large International Reserves Hoarding," NBER Working Papers 12718, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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