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Is the Chinese Currency Substantially Misaligned to Warrant Further Appreciation?

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Author Info

  • Duo Qin

    (Queen Mary, University of London)

  • Xinhua He

    (Chinese Academy of Social Sciences)

Abstract

This study provides quarterly time-series estimates of the misalignment in the REER of the Renminbi (RMB). The estimation is based on a commonly used economic approach, but with a wider and more up-to-date coverage of data and a more extensive use of econometric modelling techniques. Our estimates corroborate and explain most of the previous estimates. More importantly, our estimates demonstrate that there is no significant undervaluation in the REER of the RMB though downward misalignment exists in the trilateral rates between the RMB, US$ and euro. The finding refutes the claim that RMB appreciation is the primary and necessary solution to the current global trade imbalance.

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Bibliographic Info

Paper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 660.

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Date of creation: Feb 2010
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Handle: RePEc:qmw:qmwecw:wp660

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Keywords: Real exchange rate misalignment;

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  1. Qin, Duo & Cagas, Marie Anne & Ducanes, Geoffrey & He, Xinhua & Liu, Rui & Liu, Shiguo & Magtibay-Ramos, Nedelyn & Quising, Pilipinas, 2007. "A macroeconometric model of the Chinese economy," Economic Modelling, Elsevier, vol. 24(5), pages 814-822, September.
  2. Philip Lane & Gian Maria Milesi-Ferretti, 2001. "THE EXTERNAL WEALTH OF NATIONS: Measures of Foreign Assets and Liabilities For Industrial and Developing Countries," Trinity Economics Papers 20014, Trinity College Dublin, Department of Economics.
  3. Jeffrey Frankel, 2005. "On the Renminbi: The Choice between Adjustment under a Fixed Exchange Rate and Adjustment under a Flexible Rate," NBER Working Papers 11274, National Bureau of Economic Research, Inc.
  4. Benigno, Gianluca & Christoph Thoenissen, 2002. "Equilibrium Exchange Rates and Supply Side Performance," Royal Economic Society Annual Conference 2002 19, Royal Economic Society.
  5. Ronald MacDonald & Preethike Dias, 2007. "Behavioural equilibrium exchange rate estimates and implied exchange rate adjustments for ten countries," Working Papers 2007_12, Business School - Economics, University of Glasgow.
  6. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2009. "China's Current Account and Exchange Rate," NBER Working Papers 14673, National Bureau of Economic Research, Inc.
  7. Virginie Coudert & Cécile Couharde, 2005. "Real Equilibrium Exchange Rate in China," Working Papers 2005-01, CEPII research center.
  8. Ronald McKinnon & Gunther Schnabl, 2009. "China's financial conundrum and global imbalances," BIS Working Papers 277, Bank for International Settlements.
  9. Kakkar, Vikas & Ogaki, Masao, 1999. "Real exchange rates and nontradables: A relative price approach," Journal of Empirical Finance, Elsevier, vol. 6(2), pages 193-215, April.
  10. Bergstrand, Jeffrey H, 1991. "Structural Determinants of Real Exchange Rates and National Price Levels: Some Empirical Evidence," American Economic Review, American Economic Association, vol. 81(1), pages 325-34, March.
  11. MacDonald, Ronald & Ricci, Luca Antonio, 2007. "Real exchange rates, imperfect substitutability, and imperfect competition," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 639-664, December.
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Cited by:
  1. Roland Döhrn & Tobias Kitlinski & Torsten Schmidt & Simeon Vosen, 2010. "Die wirtschaftliche Entwicklung im Ausland zur Jahreswende 2009/2010 - Belasteter Aufschwung," RWI Konjunkturbericht, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, pages 31, 03.

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