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Exchange Rate Misalignment - The Case of the Chinese Renminbi

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  • Yin-Wong Cheung

Abstract

Assessing exchange rate misalignment is not an easy task. With reference to the debate on the value of China’s currency, the renminbi (RMB), this article highlights a few challenges in properly assessing the extent of currency misalignment. The results derived from the fundamental equilibrium exchange rate (FEER) approach and the Penn effect regression are used to illustrate the sensitivity of misalignment estimate to assumptions of the key parameters in a given model, sampling uncertainty, serial correlation adjustment, and data revision. It is shown that both the sign and the magnitude of a misalignment estimate could be dramatically affected by these factors.

Suggested Citation

  • Yin-Wong Cheung, 2012. "Exchange Rate Misalignment - The Case of the Chinese Renminbi," CESifo Working Paper Series 3797, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_3797
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp3797.pdf
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    Cited by:

    1. repec:eee:ecmode:v:69:y:2018:i:c:p:82-90 is not listed on IDEAS
    2. Jin, Hailong & Choi, Yoonho & Kwan Choi, E., 2016. "Unemployment and optimal currency intervention in an open economy," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 253-261.
    3. Jin, Hailong, 2013. "Essays on currency intervention, with particular reference to Chinese economy," ISU General Staff Papers 201301010800004079, Iowa State University, Department of Economics.

    More about this item

    Keywords

    FEER; Penn effect; sampling uncertainty; serial correlation; data revision;

    JEL classification:

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

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