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Is The Chinese Renminbi Undervalued?

  • MING HE GOH
  • YOONBAI KIM

This article seeks to investigate whether the renminbi (RMB) has become grossly undervalued by empirically estimating China's equilibrium real exchange rate for the period 1978-2002. A reduced form based on Edwards's (1989, 1994) developing-country model is estimated using the Engle-Granger two-step method. The results reveal that government expenditure, productivity, and the degree of trade restrictions in the economy affect the RMB. From these variables, the authors then derive the equilibrium rate and the degree of misalignments from it. The investigation shows that there is no evidence that the RMB is significantly undervalued in the last few years of the sample period. (JEL "F31", "F33", "F42") Copyright 2006 Western Economic Association International.

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Article provided by Western Economic Association International in its journal Contemporary Economic Policy.

Volume (Year): 24 (2006)
Issue (Month): 1 (01)
Pages: 116-126

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Handle: RePEc:bla:coecpo:v:24:y:2006:i:1:p:116-126
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