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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)

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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Bibliographic 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
Date of revision:
Handle: RePEc:hkm:wpaper:182006

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Keywords: exchange rate policy; regional integration; market integration; purchasing power parity; Balassa-Samuelson; currency misalignment.;

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References

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Citations

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Cited by:
  1. Yin-Wong Cheung & Guonan Ma & Robert N. McCauley, 2010. "Renminbising China's Foreign Assets," Working Papers, Hong Kong Institute for Monetary Research 162010, Hong Kong Institute for Monetary Research.
  2. Eichengreen, Barry & Gupta, Poonam, 2012. "The Real Exchange Rate and Export Growth: Are Services Different?," Working Papers, National Institute of Public Finance and Policy 12/112, National Institute of Public Finance and Policy.
  3. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2009. "China's Current Account and Exchange Rate," CESifo Working Paper Series 2587, CESifo Group Munich.
  4. Yin-wong Cheung & Menzie D. Chinn & Eiji Fujii, 2007. "The Overvaluation of Renminbi Undervaluation," Working Papers, Hong Kong Institute for Monetary Research 112007, Hong Kong Institute for Monetary Research.
  5. Yin-Wong Cheung & Menzie Chinn & Eiji Fujii, 2009. "Pitfalls in Measuring Exchange Rate Misalignment," Open Economies Review, Springer, Springer, vol. 20(2), pages 183-206, April.
  6. Antonia López-Villavicencio & Valérie Mignon, 2009. "On Equilibrium Exchange Rates: Is Emerging Asia Different?," Working Papers 2009-38, CEPII research center.

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