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Pitfalls in Measuring Exchange Rate Misalignment: The Yuan and Other Currencies

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  • Yin-Wong Cheung
  • Menzie D. Chinn
  • Eiji Fujii

Abstract

We evaluate whether the Renminbi (RMB) is misaligned, relying upon conventional statistical methods of inference. A framework built around the relationship between relative price and relative output levels is used. We find that, once sampling uncertainty and serial correlation are accounted for, there is little statistical evidence that the RMB is undervalued, even though the point estimates usually indicate economically significant misalignment. The result is robust to various choices of country samples and sample periods, as well as to the inclusion of control variables. We then update the results using the latest vintage of the data to demonstrate how fragile the results are. We find that whatever misalignment we detected in our previous work disappears in this data set.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14168.

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Date of creation: Jul 2008
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Publication status: published as 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.
Handle: RePEc:nbr:nberwo:14168

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  1. Chinn, M.D., 1997. "The Usual Suspects? Productivity and Demand Shocks and Asia-Pacific Real Exchange Rates," Papers, Economisch Institut voor het Midden en Kleinbedrijf- 97-06, Economisch Institut voor het Midden en Kleinbedrijf-.
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Citations

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Cited by:
  1. Robert N. McCauley & Guonan Ma & Yin-Wong Cheung, 2009. "Renminbisation des actifs internationaux de la Chine," Revue d'Économie Financière, Programme National Persée, Programme National Persée, vol. 95(2), pages 135-155.
  2. Yin-Wong Cheung & Eiji Fujii, 2012. "The Penn Effect within a Country - Evidence from Japan," CESifo Working Paper Series 3955, CESifo Group Munich.
  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. Tatom, John, 2008. "Imbalances in China and U.S. Capital Flows," MPRA Paper 11706, University Library of Munich, Germany.
  5. John A. Tatom, 2008. "Imbalances in China and U.S. Capital Flows," NFI Working Papers, Indiana State University, Scott College of Business, Networks Financial Institute 2008-WP-14, Indiana State University, Scott College of Business, Networks Financial Institute.
  6. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2010. "Measuring Renminbi Misalignment: Where Do We Stand?," Working Papers, Hong Kong Institute for Monetary Research 242010, Hong Kong Institute for Monetary Research.
  7. Das, Dilip K., 2009. "The evolution of renminbi yuan and the protracted debate on its undervaluation: An integrated review," Journal of Asian Economics, Elsevier, Elsevier, vol. 20(5), pages 570-579, September.
  8. Fischer, Christoph, 2012. "Currency blocs in the 21st century," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 24/2012, Bank of Finland, Institute for Economies in Transition.
  9. Cheung , Yin-Wong & Fujii, Eiji, 2011. "Exchange rate misalignment estimates – Sources of differences," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 25/2011, Bank of Finland, Institute for Economies in Transition.
  10. Gu, Li & McNelis, Paul D., 2013. "Yen/Dollar volatility and Chinese fear of floating: Pressures from the NDF market," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 22(C), pages 37-49.

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