The Illusion of Precision and the Role of the Renminbi in Regional Integration
Abstract
The debate on renminbi (RMB) revaluation has not subsided, despite the policy change announced by the Chinese authorities in July 2005. In this chapter, we show that the evidence of RMB undervaluation may not be as strong as it appears. Specifically, depending on the method used, the evidence ranges from slight overvaluation to undervaluation. Even in the case of undervaluation, the results are not significant in the statistical sense. We also note that China is playing an important economic role in Asia and has established a complex production and trade network with its neighboring economies, which complicates the calculation of the equilibrium exchange rate. Thus, a change in Chinese exchange rate policy in response to demands from foreign countries and short-run considerations may have undesirable effects on the economies of China and the Asian region.Download Info
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.Bibliographic Info
Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 182006.Length: 36 pages
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:hkm:wpaper:182006
Contact details of provider:
Postal: 55th Floor , Two International Finance Centre , 8 Finance Street , Central, Hong Kong
Phone: (852)2878 1978
Fax: (852)2878 7006
Email:
Web page: http://www.hkimr.org
More information through EDIRC
Related research
Keywords: exchange rate policy; regional integration; market integration; purchasing power parity; Balassa-Samuelson; currency misalignment.;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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-08-27 (All new papers)
- NEP-CNA-2007-08-27 (China)
- NEP-IFN-2007-08-27 (International Finance)
- NEP-MON-2007-08-27 (Monetary Economics)
- NEP-SEA-2007-08-27 (South East Asia)
References
References listed on IDEASPlease 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.:
- Carsten A. Holz, 2005.
"China’s Economic Growth 1978-2025: What We Know Today about China’s Economic Growth Tomorrow,"
Development and Comp Systems
0507001, EconWPA.
- Holz, Carsten A., 2008. "China's Economic Growth 1978-2025: What We Know Today About China's Economic Growth Tomorrow," World Development, Elsevier, vol. 36(10), pages 1665-1691, October.
- Carsten A Holz, 2005. "China’s Economic Growth 1978-2025: What We Know Today about China’s Economic Growth Tomorrow," Development and Comp Systems 0512002, EconWPA.
- 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.
- Menzie D. Chinn & Eswar S. Prasad, 2000. "Medium-Term Determinants of Current Accounts in Industrial and Developing Countries: An Empirical Exploration," NBER Working Papers 7581, National Bureau of Economic Research, Inc.
- Menzie David Chinn & Eswar Prasad, 2000. "Medium-Term Determinants of Current Accounts in Industrial and Developing Countries - An Empirical Exploration," IMF Working Papers 00/46, International Monetary Fund.
- Cheung, Yin-Wong & Chinn, Menzie David & Garcia Pascual, Antonio, 2003.
"Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive?,"
Santa Cruz Department of Economics, Working Paper Series
qt12z9x4c5, Department of Economics, UC Santa Cruz.
- Cheung, Yin-Wong & Chinn, Menzie D. & Pascual, Antonio Garcia, 2005. "Empirical exchange rate models of the nineties: Are any fit to survive?," Journal of International Money and Finance, Elsevier, vol. 24(7), pages 1150-1175, November.
- Cheung, Yin-Wong & Chinn, Menzie & Garcia Pascual, Antonio, 2003. "Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive?," Santa Cruz Center for International Economics, Working Paper Series qt5fc508pt, Center for International Economics, UC Santa Cruz.
- Yin-Wong Cheung & Antonio Garcia Pascual & Menzie David Chinn, 2004. "Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive?," IMF Working Papers 04/73, International Monetary Fund.
- Yin-Wong Cheung & Menzie D. Chinn & Antonio Garcia Pascual, 2002. "Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive?," NBER Working Papers 9393, National Bureau of Economic Research, Inc.
- Cheung, Yin-Wong & Chinn, Menzie & Garcia Pascual, Antonio, 2003. "Empirical Exchange Rate Models of the Nineties: Are Any Fit to Survive?," Santa Cruz Department of Economics, Working Paper Series qt5fc508pt, Department of Economics, UC Santa Cruz.
- Kakkar, Vikas & Ogaki, Masao, 1999. "Real exchange rates and nontradables: A relative price approach," Journal of Empirical Finance, Elsevier, vol. 6(2), pages 193-215, April.
- Richard C. Marston, 1990. "Systematic Movements in Real Exchange Rates in the G-5: Evidence on theIntegration of Internal and External Markets," NBER Working Papers 3332, National Bureau of Economic Research, Inc.
- Kei-Mu Yi, 2000.
"Can vertical specialization explain the growth of world trade?,"
Staff Reports
96, Federal Reserve Bank of New York.
- Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 52-102, February.
- 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.
- Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
- Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2003.
"An Essay on the Revived Bretton Woods System,"
NBER Working Papers
9971, National Bureau of Economic Research, Inc.
- Michael Dooley & David Folkerts-Landau & Peter Garber, 2005. "An essay on the revived Bretton Woods system," Proceedings, Federal Reserve Bank of San Francisco, issue Feb.
- Adam Szirmai & Ruoen Ren & Manyin Bai, 2005. "Chinese Manufacturing Performance in Comparative Perspective, 1980-2002," Working Papers 920, Economic Growth Center, Yale University.
- 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.
- Eswar Prasad & Shang-Jin Wei, 2007. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 421-480 National Bureau of Economic Research, Inc.
- Shang-Jin Wei & Eswar Prasad, 2005. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," IMF Working Papers 05/79, International Monetary Fund.
- Zhang, Zhichao, 2001. "Real Exchange Rate Misalignment in China: An Empirical Investigation," Journal of Comparative Economics, Elsevier, vol. 29(1), pages 80-94, March.
- Jeffrey Frankel, 2005.
"On the Renminbi: The Choice between Adjustment under a Fixed Exchange Rate and Adjustment under a Flexible Rate,"
NBER Working Papers
11274, National Bureau of Economic Research, Inc.
- 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.
- 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.
- Canzoneri, Matthew B. & Cumby, Robert E. & Diba, Behzad, 1999. "Relative labor productivity and the real exchange rate in the long run: evidence for a panel of OECD countries," Journal of International Economics, Elsevier, vol. 47(2), pages 245-266, April.
- Canzoneri, Matthew B & Cumby, Robert & Diba, Behzad, 1996. "Relative Labour Productivity and the Real Exchange Rate in the Long Run: Evidence for a Panel of OECD Countries," CEPR Discussion Papers 1464, C.E.P.R. Discussion Papers.
- Ehsan U. Choudhri & Mohsin S. Khan, 2005.
"Real Exchange Rates in Developing Countries: Are Balassa-Samuelson Effects Present?,"
IMF Staff Papers,
Palgrave Macmillan, vol. 52(3), pages 2.
- Mohsin S. Khan & Ehsan U. Choudhri, 2004. "Real Exchange Rates in Developing Countries: Are Balassa-Samuelson Effects Present?," IMF Working Papers 04/188, International Monetary Fund.
- James H. Stock & Mark W. Watson, 1991.
"A simple estimator of cointegrating vectors in higher order integrated systems,"
Working Paper Series, Macroeconomic Issues
91-3, Federal Reserve Bank of Chicago.
- Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
- Cheung, Yin-Wong & Lai, Kon S., 1993. "Long-run purchasing power parity during the recent float," Journal of International Economics, Elsevier, vol. 34(1-2), pages 181-192, February.
- Marston, Richard C., 1990. "Systematic movements in real exchange rates in the G-5 : Evidence on the integration of internal and external markets," Journal of Banking & Finance, Elsevier, vol. 14(5), pages 1023-1044, November.
- Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
- Arndt, Sven W., 1997. "Globalization and the open economy," The North American Journal of Economics and Finance, Elsevier, vol. 8(1), pages 71-79.
- Jeffrey A. Frankel & C. Fred Bergsten & Michael L. Mussa, 1994. "Exchange Rate Policy," NBER Chapters, in: American Economic Policy in the 1980s, pages 293-366 National Bureau of Economic Research, Inc.
- Virginie Coudert & Cécile Couharde, 2005. "Real Equilibrium Exchange Rate in China," Working Papers 2005-01, CEPII research center.
Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Yin-wong Cheung & Menzie D. Chinn & Eiji Fujii, 2007.
"The Overvaluation of Renminbi Undervaluation,"
Working Papers
112007, Hong Kong Institute for Monetary Research.
- Cheung, Yin-Wong & Chinn, Menzie D. & Fujii, Eiji, 2007. "The overvaluation of Renminbi undervaluation," Journal of International Money and Finance, Elsevier, vol. 26(5), pages 762-785, September.
- Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2007. "The Overvaluation of Renminbi Undervaluation," CESifo Working Paper Series 1918, CESifo Group Munich.
- Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2007. "The Overvaluation of Renminbi Undervaluation," NBER Working Papers 12850, National Bureau of Economic Research, Inc.
- Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2010.
"China's Current Account and Exchange Rate,"
NBER Chapters,
in: China's Growing Role in World Trade, pages 231-271
National Bureau of Economic Research, Inc.
- Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2009. "China's Current Account and Exchange Rate," NBER Working Papers 14673, National Bureau of Economic Research, Inc.
- Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2009. "China's Current Account and Exchange Rate," CESifo Working Paper Series 2587, CESifo Group Munich.
- Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2009. "China's Current Account and Exchange Rate," Working Papers 142009, Hong Kong Institute for Monetary Research.
- Yin‐Wong Cheung & Guonan Ma & Robert N. McCauley, 2011.
"Renminbising China'S Foreign Assets,"
Pacific Economic Review,
Wiley Blackwell, vol. 16(1), pages 1-17, 02.
- Yin-Wong Cheung & Guonan Ma & Robert N. McCauley, 2010. "Renminbising China's Foreign Assets," CESifo Working Paper Series 3009, CESifo Group Munich.
- Yin-Wong Cheung & Guonan Ma & Robert N. McCauley, 2010. "Renminbising China's Foreign Assets," Working Papers 162010, Hong Kong Institute for Monetary Research.
- 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.
Lists
This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.Statistics
Access and download statisticsCorrections
When requesting a correction, please mention this item's handle: RePEc:hkm:wpaper:182006For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (HKIMR).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.

