Beyond Cheap Talks: Assessing the Undervaluation of the Chinese Currency Between 1994 and 2007
Relying on new cointegration framework with structural breaks in the deterministic trend, this article employs the behavioral equilibrium exchange rate (BEER) approach to estimate the equilibrium real exchange rate of Renminbi (RMB) and exchange rate misalignment in China from 1994Q1 to 2007Q4. The main findings of the article are that RMB was overvalued during the Asian Financial crisis and during the period of 2001-2002. It was undervalued to a mild extent only during recent period from 2003 to 2005, except at the beginning of the sample; furthermore, slight overvaluations have appeared after the reform of exchange rate regime in 2005. Interpretations are given to shed some light on these movements.
Volume (Year): (2009)
Issue (Month): 119 ()
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