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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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Citations

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Cited by:
  1. Gu, Li & McNelis, Paul D., 2013. "Yen/Dollar volatility and Chinese fear of floating: Pressures from the NDF market," Pacific-Basin Finance Journal, Elsevier, vol. 22(C), pages 37-49.
  2. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2009. "China's Current Account and Exchange Rate," Working Papers 142009, Hong Kong Institute for Monetary Research.
  3. Christoph Fischer, 2011. "Currency blocs in the 21st century," Globalization and Monetary Policy Institute Working Paper 87, Federal Reserve Bank of Dallas.
  4. Das, Dilip K., 2009. "The evolution of renminbi yuan and the protracted debate on its undervaluation: An integrated review," Journal of Asian Economics, Elsevier, vol. 20(5), pages 570-579, September.
  5. Yin-Wong Cheung & Eiji Fujii, 2011. "Exchange Rate Misalingment Estimates - Sources of Differences," CESifo Working Paper Series 3555, CESifo Group Munich.
  6. Tatom, John, 2008. "Imbalances in China and U.S. Capital Flows," MPRA Paper 11706, University Library of Munich, Germany.

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