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Real Equilibrium Exchange Rate in China

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Author Info
Virginie Coudert
Cecile Couharde

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Abstract

In this paper, we try to measure the size of a possible misalignment in the Chinese real exchange rate by two ways. On one hand, we address the issue of the “Balassa effect”, by which the real exchange rate of a catching-up country should appreciate. We compare China with other emerging countries, in order to assess the size of a “normal” “Balassa effect”. On the other hand, we follow the FEER (Fundamental Equilibrium Exchange Rate) approach. We use the NIGEM model for representing the foreign trade of China, the United States, the Euro area, South Korea and Japan. We calculate the real effective exchange rate that is consistent with sustainable current accounts. Both methods yield an undervaluation of the renminbi.

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Paper provided by CEPII research center in its series Working Papers with number 2005-01.

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Date of creation: Jan 2005
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Handle: RePEc:cii:cepidt:2005-01

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Related research
Keywords: renminbi Balassa effect BEER FEER yen exchange rate emerging countries models key currencies foreign exchange markets

Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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  1. Balogun, Emmanuel Dele, 2007. "Exchange rate policy and export performance of WAMZ countries," MPRA Paper 6233, University Library of Munich, Germany. [Downloadable!]
  2. 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)
  3. Steven Vincent Dunaway & Xiangming Li, 2005. "Estimating China's "Equilibrium" Real Exchange Rate," IMF Working Papers 05/202, International Monetary Fund. [Downloadable!]
  4. 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!]
  5. 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!]
  6. Rod Tyers & Iain Bain, 2007. "Appreciating the Renminbi," Departmental Working Papers 2007-09, Australian National University, Economics RSPAS. [Downloadable!]
    Other versions:
  7. Matthieu Bussière & Bernd Schnatz, 2006. "Evaluating China’s integration in world trade with a gravity model based benchmark," Working Paper Series 693, European Central Bank. [Downloadable!]
  8. Rod Tyers & Jane Golley & Bu Yongxiang & Ian Bain, 2006. "China's Economic Growth and its Real Exchange Rate," ANUCBE School of Economics Working Papers 2006-476, Australian National University, College of Business and Economics, School of Economics. [Downloadable!]
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  9. Jianhuai Shi, 2006. "Are Currency Appreciations Contractionary in China?," NBER Working Papers 12551, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Meixing Dai, 2006. "Inflation-targeting under a Managed Exchange Rate: the Case of the Chinese Central Bank," Journal of Chinese Economic and Business Studies, Taylor and Francis Journals, vol. 4(3), pages 199-219, November. [Downloadable!] (restricted)
  11. Antoine Bouveret & Sana Mestiri & Henri Sterdyniak, 2006. "The renminbi equilibrium exchange rate: an agnostic view," Documents de Travail de l'OFCE 2006-13, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
  12. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2007. "The Overvaluation of Renminbi Undervaluation," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  13. Olivier Darné & Jean-François Hoarau, 2006. "Testing the purchasing power parity in China," EconomiX Working Papers 2006-18, University of Paris West - Nanterre la Défense, EconomiX. [Downloadable!]
  14. Rod Tyers & Jane Golley, 2007. "China’s Real Exchange Rate," ANUCBE School of Economics Working Papers 2007-479, Australian National University, College of Business and Economics, School of Economics. [Downloadable!]
  15. Balogun, Emmanuel Dele, 2007. "Effects of exchange rate policy on bilateral export trade of WAMZ countries," MPRA Paper 6234, University Library of Munich, Germany. [Downloadable!]
  16. Nicolaas Groenewold & Lei He, 2006. "The US-China Trade Imbalance: Will Revaluing the RMB Help (Much)?," Economics Discussion / Working Papers 06-27, The University of Western Australia, Department of Economics. [Downloadable!]
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