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Understanding the behavioral equilibrium exchange rate model via its application to the valuation of Chinese renminbi

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  • Zhang, Zhibai

Abstract

In this paper, the behavioral equilibrium exchange rate (BEER) model used in a time-series setting is investigated, via its application to the valuation of Chinese renminbi. A classical definition with its generalization is given. The different misalignment results derived from the BEER models are proven to result from the different econometric component choices. It is found that some of the misalignment results are consistent with Chinese economic facts, but some others are not. Finally, four main flaws unavoidable under the BEER model are given and analyzed.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40648.

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Date of creation: 01 Jan 2010
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Handle: RePEc:pra:mprapa:40648

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Keywords: Behavioral equilibrium exchange rate; Chinese renminbi;

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  1. Égert, Balázs & Halpern, László & MacDonald, Ronald, 2004. "Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4809, C.E.P.R. Discussion Papers.
  2. Baffes, John & Elbadawi, Ibrahim A. & O'Connell, Stephen A., 1997. "Single-equation estimation of the equilibrium real exchange rate," Policy Research Working Paper Series 1800, The World Bank.
  3. Clark, Peter B. & MacDonald, Ronald, 2004. "Filtering the BEER: A permanent and transitory decomposition," Global Finance Journal, Elsevier, vol. 15(1), pages 29-56.
  4. Chang, Gene Hsin & Shao, Qin, 2004. "How much is the Chinese currency undervalued? A quantitative estimation," China Economic Review, Elsevier, Elsevier, vol. 15(3), pages 366-371.
  5. Zhang, Zhichao, 2001. "Real Exchange Rate Misalignment in China: An Empirical Investigation," Journal of Comparative Economics, Elsevier, vol. 29(1), pages 80-94, March.
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  8. Frankel, Jeffrey, 2004. "On the Renminbi: The Choice between Adjustment under a Fixed Exchange Rate and Adustment under a Flexible Rate," Working Paper Series rwp04-037, Harvard University, John F. Kennedy School of Government.
  9. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 72, pages 584.
  10. Lamin Leigh & Steven Vincent Dunaway & Xiangming Li, 2006. "How Robust Are Estimates of Equilibrium Real Exchange Rates," IMF Working Papers 06/220, International Monetary Fund.
  11. Ronald MacDonald & Peter B. Clark, 1998. "Exchange Rates and Economic Fundamentals," IMF Working Papers 98/67, International Monetary Fund.
  12. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
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  14. Wang, Yajie & Hui, Xiaofeng & Soofi, Abdol S., 2007. "Estimating renminbi (RMB) equilibrium exchange rate," Journal of Policy Modeling, Elsevier, Elsevier, vol. 29(3), pages 417-429.
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Cited by:
  1. 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.

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