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The Illusion of Precision and the Role of the Renminbi in Regional Integration

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Author Info
Yin-wong Cheung (University of California, Santa Cruz)
Menzie D. Chinn (University of Wisconsin, Madison and NBER)
Eiji Fujii (University of Tsukuba)

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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.

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Publisher Info
Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 182006.

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Length: 36 pages
Date of creation: Dec 2006
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Handle: RePEc:hkm:wpaper:182006

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Related research
Keywords: exchange rate policy; regional integration; market integration; purchasing power parity; Balassa-Samuelson; 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

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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. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2007. "The Overvaluation of Renminbi Undervaluation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
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