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China'S Equilibrium Real Exchange Rate: A Counterfactual Analysis

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  • Rod Tyers
  • Iain Bain
  • Yongxiang Bu

Abstract

China's 'equilibrium' real effective exchange rate is explored using an adaptation of the Devarajan-Lewis-Robinson three-good general equilibrium model under a variety of assumptions about the balance of trade. The absence of secondary indices of import and export prices necessitates their construction from trade data. Some undervaluation is suggested in the lead-up to and during the financial crisis, due in part to an extraordinary accumulation of foreign reserves following exchange rate integration in 1994. If, instead, China had run a more typical trade balance prior to the crisis its real effective exchange rate would have been higher by about a tenth. Copyright 2008 The Authors Journal compilation 2008 Blackwell Publishing Ltd

Suggested Citation

  • Rod Tyers & Iain Bain & Yongxiang Bu, 2008. "China'S Equilibrium Real Exchange Rate: A Counterfactual Analysis," Pacific Economic Review, Wiley Blackwell, vol. 13(1), pages 17-39, February.
  • Handle: RePEc:bla:pacecr:v:13:y:2008:i:1:p:17-39
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    References listed on IDEAS

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    1. Sebastian Edwards, 1989. "Real Exchange Rates in the Developing Countries: Concepts and Measure- ment," NBER Working Papers 2950, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Tyers, Rod, 2015. "International effects of China's rise and transition: Neoclassical and Keynesian perspectives," Journal of Asian Economics, Elsevier, vol. 37(C), pages 1-19.
    2. Zhang, Yin & Wan, Guanghua, 2007. "What accounts for China's trade balance dynamics?," Journal of Policy Modeling, Elsevier, vol. 29(6), pages 821-837.
    3. Rod Tyers, 2016. "China and Global Macroeconomic Interdependence," The World Economy, Wiley Blackwell, vol. 39(11), pages 1674-1702, November.
    4. Rod Tyers & Ying Zhang, 2011. "Appreciating the Renminbi," The World Economy, Wiley Blackwell, vol. 34(2), pages 265-297, February.
    5. Korhonen, Iikka & Ritola, Maria, 2009. "Renminbi misaligned : Results from meta-regressions," BOFIT Discussion Papers 13/2009, Bank of Finland, Institute for Economies in Transition.
    6. Rod Tyers & Ying Zhang, 2014. "Real exchange rate determination and the China puzzle," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 28(2), pages 1-32, November.
    7. Zhang, Yin & Wan, Guanghua, 2008. "Correcting China's trade imbalance: Monetary means will not suffice," Journal of Policy Modeling, Elsevier, vol. 30(3), pages 505-521.
    8. Rod Tyers & Iain Bain, 2008. "American and European Financial Shocks: Implications for Chinese Economic Performance," ANU Working Papers in Economics and Econometrics 2008-491, Australian National University, College of Business and Economics, School of Economics.
    9. Jakub Borowski & Adam Czerniak & Krystian Jaworski, 2014. "The quest for determinants of Chinese exchange rate policy," Bank i Kredyt, Narodowy Bank Polski, vol. 45(5), pages 407-432.
    10. repec:bla:apacel:v:31:y:2017:i:1:p:39-52 is not listed on IDEAS
    11. 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.
    12. Bernd Schnatz, 2011. "Global Imbalances And The Pretence Of Knowing Fundamental Equilibrium Exchange Rates," Pacific Economic Review, Wiley Blackwell, vol. 16(5), pages 604-615, December.
    13. Prayudhi Azwar & Rod Tyers, 2015. "Indonesian Macro Policy through Two Crises," CAMA Working Papers 2015-16, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    14. Tyers, Rod & Golley, Jane, 2008. "China’s Real Exchange Rate Puzzle," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 23, pages 547-574.
    15. Rod Tyers & Jane Golley, 2007. "China’s Real Exchange Rate," ANU Working Papers in Economics and Econometrics 2007-479, Australian National University, College of Business and Economics, School of Economics.

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