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Measuring Renminbi Misalignment: Where Do We Stand?

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Author Info

  • Yin-Wong Cheung

    (University of California, Santa Cruz and Hong Kong Institute for Monetary Research)

  • Menzie D. Chinn

    (University of Wisconsin, Madison)

  • Eiji Fujii

    (Kwansei Gakuin University)

Abstract

The value of China's currency, the renminbi (RMB), and the conduct of China's exchange rate policy have generated intense debate in academic and international policy circles. Despite the accumulation of empirical evidence regarding the degree of RMB misalignment over the past few years, the debate continues unabated. In this study, we highlight the challenges to properly assessing the nature and degree of currency misalignment, in terms of the choice of the model, the method of calculation, and data uncertainty. In particular, we demonstrate the susceptibility of misalignment estimates to model selection and data revisions. Further, we explicitly discuss the implications of sampling uncertainty for determining the extent of RMB misalignment.

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Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 242010.

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Length: 31 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:hkm:wpaper:242010

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Keywords: Absolute Purchasing Power Parity; China; Currency Misalignment; Sampling Uncertainty; Data Revision;

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References

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  1. 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.
  2. Fernald, John & Edison, Hali & Loungani, Prakash, 1999. "Was China the first domino? Assessing links between China and other Asian economies," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 515-535, August.
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  7. Eichengreen, Barry, 2007. "Comment on Cheung, Chinn and Fujii, "The Overvaluation of Renminbi Undervaluation"," Journal of International Money and Finance, Elsevier, vol. 26(5), pages 786-787, September.
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  9. Anna J. Schwartz, 2005. "Dealing with Exchange Rate Protectionism," Cato Journal, Cato Journal, Cato Institute, vol. 25(1), pages 97-106, Winter.
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  13. 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.
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Cited by:
  1. Cheung , Yin-Wong & Fujii, Eiji, 2011. "Exchange rate misalignment estimates – Sources of differences," BOFIT Discussion Papers 25/2011, Bank of Finland, Institute for Economies in Transition.
  2. Yin-Wong Cheung, 2012. "Exchange Rate Misalignment - The Case of the Chinese Renminbi," CESifo Working Paper Series 3797, CESifo Group Munich.

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