IDEAS home Printed from https://ideas.repec.org/a/khe/scajes/v1y2015i3p148-165.html
   My bibliography  Save this article

Estimate of Equilibrium Real Exchange Rate and Misalignment of Chinese Yuan Vis-a-Vis US Dollar

Author

Listed:
  • Atabani Adi Agya

    ()

  • Du Jun

    ()

Abstract

The paper examines the misalignment in equilibrium real exchange rate of Chinese Yuan against US dollar. The data covered the period of 1980-2014, it used Vector Autoregressive model, the variables are not stationary at level and became stationary after first differencing and there were three co-integration vectors. The long run coefficients have expected sign except for interest rate differential and are significant at 5 percent significance level. The speed of adjustment of real exchange rate to it equilibrium indicated that the disequilibrium in the last period are corrected by 87 percent each year and highly significant. The Yuan was overvalued by 4 percent, from 1981-1990 and in1990 it was undervalue about 4 percent and move back to equilibrium, the highest overvaluation was in 1993 up to 13 percent from equilibrium value and undervalue in 1994 by 14 percent which was the highest level of undervaluation, between 1996 to 2005 the Yuan was relatively within it equilibrium and slightly over value to 3.8 percent in 2008 back to long time path in 2011 and relatively undervalue by 1-3 percent since 2012, in general the Yuan is not substantially undervalue as claims in some studies both theoretical and empirical estimation and the movement in the exchange rate are consistent with economic fundamental of China.

Suggested Citation

  • Atabani Adi Agya & Du Jun, 2015. "Estimate of Equilibrium Real Exchange Rate and Misalignment of Chinese Yuan Vis-a-Vis US Dollar," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 1(3), pages 148-165, September.
  • Handle: RePEc:khe:scajes:v:1:y:2015:i:3:p:148-165
    as

    Download full text from publisher

    File URL: http://www.ajes.ro/wp-content/uploads/AJES_article_1_30.pdf
    Download Restriction: no

    File URL: http://www.ajes.ro/wp-content/uploads/AJES_article_1_30.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Jeff Chen & Wende Deng & David Kemme, 2008. "Yuan Real Exchange Rate Undervaluation, 1997-2006. How Much, How Often? Not Much, Not Often," William Davidson Institute Working Papers Series wp934, William Davidson Institute at the University of Michigan.
    2. Sims, Christopher A, 1980. "Comparison of Interwar and Postwar Business Cycles: Monetarism Reconsidered," American Economic Review, American Economic Association, vol. 70(2), pages 250-257, May.
    3. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    4. Zhichao Zhang, 2002. "Real Exchange Rate Behaviour Under Hong Kong'S Linked Exchange Rate System: An Empirical Investigation," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 5(01), pages 55-78.
    5. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
    6. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    7. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    8. Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, vol. 35(1), pages 143-159, May.
    9. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yin-Wong Cheung & Shi He, 2019. "Truths and Myths About RMB Misalignment: A Meta-analysis," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 61(3), pages 464-492, September.

    More about this item

    Keywords

    Equilibrium Exchange Rate; Economic Fundamental; Misalignment; Yuan Vis-a-Vis US Dollar;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:khe:scajes:v:1:y:2015:i:3:p:148-165. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Adi Sava). General contact details of provider: http://edirc.repec.org/data/ffucdro.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.