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Behavior Equilibrium Exchange Rate and Misalignment of Renminbi: A Recent Empirical Study

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  • Jinzhao Chen

Abstract

This paper employs the behavioral equilibrium exchange rate (BEER) model to estimate the equilibrium real exchange rate of Renminbi (RMB) and the exchange rate misalignment in China, which covers the period from 1994q1 to 2006q2. Using the most precise and recent data, the main findings of the paper are that (1) since 1994q1, RMB equilibrium exchange rate has exhibited a steady appreciation, but from the 1999q3 to the recent period, it started to depreciate. And (2) that RMB real exchange rate has been under-valuated during the most part of sample period, but this misalignment has a trend to become smaller and small, and in recent after-reform period, a small degree of over-evaluation replaces this under-valuation.

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Bibliographic Info

Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c012_013.

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Length: 21 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:deg:conpap:c012_013

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Keywords: Behavior equilibrium exchange rate; cointegration; misalignment; Renminbi;

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  1. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 1999. "The External Wealth of Nations: Measures of Foreign Assets and Liabilities for Industrial and Developing Countries," CEPR Discussion Papers 2231, C.E.P.R. Discussion Papers.
  2. Frankel, Jeffrey, 2004. "On the Renminbi: The Choice between Adjustment under a Fixed Exchange Rate and Adustment under a Flexible Rate," Working Paper Series rwp04-037, Harvard University, John F. Kennedy School of Government.
  3. Ronald MacDonald, 1997. "What Determines Real Exchange Rates? The Long and Short of it," IMF Working Papers 97/21, International Monetary Fund.
  4. Baffes, John & Elbadawi, Ibrahim A. & O'Connell, Stephen A., 1997. "Single-equation estimation of the equilibrium real exchange rate," Policy Research Working Paper Series 1800, The World Bank.
  5. Morris Goldstein, 2004. "Adjusting China's Exchange Rate Policies," Working Paper Series WP04-1, Peterson Institute for International Economics.
  6. Funke, Michael & Rahn, Jörg, 2004. "Just how undervalued is the Chinese renminbi?," BOFIT Discussion Papers 14/2004, Bank of Finland, Institute for Economies in Transition.
  7. Coudert, Virginie & Couharde, Cecile, 2007. "Real equilibrium exchange rate in China is the renminbi undervalued?," Journal of Asian Economics, Elsevier, vol. 18(4), pages 568-594, August.
  8. Se-Eun Jeong & Jacques Mazier, 2003. "Exchange Rate Regimes and Equilibrium Exchange Rates in East Asia," Revue économique, Presses de Sciences-Po, vol. 54(5), pages 1161-1182.
  9. Ronald MacDonald & Peter B. Clark, 1998. "Exchange Rates and Economic Fundamentals," IMF Working Papers 98/67, International Monetary Fund.
  10. Zhang, Zhichao, 2001. "Real Exchange Rate Misalignment in China: An Empirical Investigation," Journal of Comparative Economics, Elsevier, vol. 29(1), pages 80-94, March.
  11. Dominique Desruelle & Alessandro Zanello, 1997. "A Primeron the IMF's Information Notice System," IMF Working Papers 97/71, International Monetary Fund.
  12. Clostermann, Jörg & Schnatz, Bernd, 2000. "The determinants of the euro-dollar exchange rate: synthetic fundamentals and a non-existing currency," Discussion Paper Series 1: Economic Studies 2000,02, Deutsche Bundesbank, Research Centre.
  13. Eswar Prasad, 2004. "China's Growth and Integration into the World Economy," IMF Occasional Papers 232, International Monetary Fund.
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Cited by:
  1. Bineau, Yannick, 2010. "Renminbi's misalignment: A meta-analysis," Economic Systems, Elsevier, vol. 34(3), pages 259-269, September.
  2. Dai, Meixing, 2012. "In Search of an Optimal Strategy for Yuan’s Real Revaluation," MPRA Paper 41047, University Library of Munich, Germany.
  3. You, Kefei & Sarantis, Nicholas, 2012. "Structural breaks and the equilibrium real effective exchange rate of China: A NATREX approach," China Economic Review, Elsevier, vol. 23(4), pages 1146-1163.
  4. Christopher Garroway & Burcu Hacibedel & Helmut Reisen & Edouard Turkisch, 2010. "The Renminbi and Poor-Country Growth," OECD Development Centre Working Papers 292, OECD Publishing.
  5. Gan, Christopher & Ward, Bert & Ting, Su Ting & Cohen, David A., 2013. "An empirical analysis of China's equilibrium exchange rate: A co-integration approach," Journal of Asian Economics, Elsevier, vol. 29(C), pages 33-44.

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