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New PPP-Based Estimates of Renminbi Undervaluation and Policy Implications

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  • Arvind Subramanian

    ()
    (Peterson Institute for International Economics)

Abstract

New estimates by Arvind Subramanian for the undervaluation of the Chinese currency based on the purchasing power parity (PPP) approach find that the renminbi is undervalued by approximately 30 percent rather than the 12 percent widely reported. Subramanian applies new insights about the way PPP data are compiled, uses new data that have become available, and corrects existing estimates for the biases in the data in order to attain a more accurate estimation of China's currency undervaluation. Corrective action must be taken not primarily to help China but to prevent its currency undervaluation from harming the rest of the world. The real victims of China's currency policies, argues Subramanian, are other emerging-market and developing countries because they compete more closely with China. It is crucial that the subject be broached delicately and with humility and that a multilateral approach be taken with China, most likely by going through the World Trade Organization.

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Bibliographic Info

Paper provided by Peterson Institute for International Economics in its series Policy Briefs with number PB10-8.

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Date of creation: Apr 2010
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Handle: RePEc:iie:pbrief:pb10-8

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Cited by:
  1. Kappler, Marcus & Reisen, Helmut & Schularick, Moritz & Turkisch, Edouard, 2011. "The macroeconomic effects of large exchange rate appreciations," ZEW Discussion Papers 11-016, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Zhang, Zhibai, 2012. "A simple model and its application in currency valuation," MPRA Paper 40650, University Library of Munich, Germany.
  3. Soyoung Kim & Yoonbai Kim, . "The RMB Debate: Empirical Analysis on the Effects of Exchange Rate Shocks in China and Japan," Economics Working Papers 16-01/2014, School of Business Administration, American University of Sharjah.
  4. Yang, Jun & Zhang, Wei & Tokgoz, Simla, 2013. "Macroeconomic impacts of Chinese currency appreciation on China and the Rest of World: A global CGE analysis," Journal of Policy Modeling, Elsevier, vol. 35(6), pages 1029-1042.
  5. Zhibai, Zhang, 2012. "A Simple Model and Its Application in the Valuation of Five Asian Real Exchange Rates," MPRA Paper 40953, University Library of Munich, Germany.
  6. Florence Pisani & Anton Brender, 2010. "La crise de la finance globalisée," Économie et Statistique, Programme National Persée, vol. 438(1), pages 85-104.

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