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Is The Chinese Renminbi Undervalued?




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.

Suggested Citation

  • Ming He Goh & Yoonbai Kim, 2006. "Is The Chinese Renminbi Undervalued?," Contemporary Economic Policy, Western Economic Association International, vol. 24(1), pages 116-126, January.
  • Handle: RePEc:bla:coecpo:v:24:y:2006:i:1:p:116-126

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    References listed on IDEAS

    1. Sole Olle, Albert, 2003. "Electoral accountability and tax mimicking: the effects of electoral margins, coalition government, and ideology," European Journal of Political Economy, Elsevier, vol. 19(4), pages 685-713, November.
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    Cited by:

    1. Hsiao, Yu-Ming & Pan, Sheng-Chieh & Wu, Po-Chin, 2012. "Does the central bank's intervention benefit trade balance? Empirical evidence from China," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 130-139.
    2. Granville, Brigitte & Mallick, Sushanta & Zeng, Ning, 2011. "Chinese exchange rate and price effects on G3 import prices," Journal of Asian Economics, Elsevier, vol. 22(6), pages 427-440.
    3. Gan, Christopher & Ward, Bert & Ting, Su Ting & Cohen, David A., 2013. "An empirical analysis of China's equilibrium exchange rate: A co-integration approach," Journal of Asian Economics, Elsevier, vol. 29(C), pages 33-44.
    4. Zhang, Zhibai, 2010. "Understanding the behavioral equilibrium exchange rate model via its application to the valuation of Chinese renminbi," MPRA Paper 40648, University Library of Munich, Germany.
    5. Zhang, Zhibai, 2010. "A comparison of the BEER and Penn effect models via their applications on the valuation of the Renminbi," MPRA Paper 40649, University Library of Munich, Germany.
    6. Zhang, Zhibai, 2011. "Some notes on the behavioral equilibrium exchange rate model," MPRA Paper 40965, University Library of Munich, Germany.
    7. Yang, Jun & Zhang, Wei & Tokgoz, Simla, 2013. "Macroeconomic impacts of Chinese currency appreciation on China and the Rest of World: A global CGE analysis," Journal of Policy Modeling, Elsevier, vol. 35(6), pages 1029-1042.
    8. Yang, Jun & Zhang, Wei & Tokgoz, Simla, 2012. "The macroeconomic impacts of Chinese currency appreciation on China and the rest of world : A global computable general equilibrium analysis," IFPRI discussion papers 1178, International Food Policy Research Institute (IFPRI).

    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission


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