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New PPP-Based Estimates of Renminbi Undervaluation and Policy Implications

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  • Arvind Subramanian

    () (Peterson Institute for International Economics)

Abstract

New estimates by Arvind Subramanian for the undervaluation of the Chinese currency based on the purchasing power parity (PPP) approach find that the renminbi is undervalued by approximately 30 percent rather than the 12 percent widely reported. Subramanian applies new insights about the way PPP data are compiled, uses new data that have become available, and corrects existing estimates for the biases in the data in order to attain a more accurate estimation of China's currency undervaluation. Corrective action must be taken not primarily to help China but to prevent its currency undervaluation from harming the rest of the world. The real victims of China's currency policies, argues Subramanian, are other emerging-market and developing countries because they compete more closely with China. It is crucial that the subject be broached delicately and with humility and that a multilateral approach be taken with China, most likely by going through the World Trade Organization.

Suggested Citation

  • Arvind Subramanian, 2010. "New PPP-Based Estimates of Renminbi Undervaluation and Policy Implications," Policy Briefs PB10-8, Peterson Institute for International Economics.
  • Handle: RePEc:iie:pbrief:pb10-8
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    Cited by:

    1. Kappler, Marcus & Reisen, Helmut & Schularick, Moritz & Turkisch, Edouard, 2013. "The Macroeconomic Effects of Large Exchange Rate Appreciations," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 471-494.
    2. Kevin Stahler & Arvind Subramanian, 2014. "Versailles Redux? Eurozone Competitiveness in a Dynamic Balassa-Samuelson-Penn Framework," Working Paper Series WP14-10, Peterson Institute for International Economics.
    3. Samba Mbaye, 2012. "Beggar-thy-Neighbor Effects of Currency Undervaluation: Is China the Tip of the Iceberg?," Working Papers halshs-00761380, HAL.
    4. Soyoung Kim & Yoonbai Kim, 2016. "The RMB Debate: Empirical Analysis on the Effects of Exchange Rate Shocks in China and Japan," The World Economy, Wiley Blackwell, vol. 39(10), pages 1539-1557, October.
    5. Frankel, Jeffrey, 2016. "Globalization and Chinese Growth: Ends of Trends?," Working Paper Series 16-029, Harvard University, John F. Kennedy School of Government.
    6. repec:mes:ijpoec:v:45:y:2016:i:4:p:294-314 is not listed on IDEAS
    7. Jeffrey A. Frankel, 2016. "International Coordination," NBER Working Papers 21878, National Bureau of Economic Research, Inc.
    8. Damien Cubizol, 2017. "Transition and capital misallocation: the Chinese case," Working Papers halshs-01176919, HAL.
    9. Zhibai Zhang & Xinyue Zou, 2013. "The Ratio Model and its Application: A Revisit," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 3(6), pages 1-4.
    10. Stephen Devadoss & Amy Hilland & Ron Mittelhammer & John Foltz, 2014. "The effects of the Yuan-dollar exchange rate on agricultural commodity trade between the United States, China, and their competitors," Agricultural Economics, International Association of Agricultural Economists, vol. 45(S1), pages 23-37, November.
    11. Shaar, Karam & Baharumshah, Ahmad Zubaidi, 2016. "US-China trade and exchange rate dilemma: The role of trade data discrepancy," Working Paper Series 5145, Victoria University of Wellington, School of Economics and Finance.
    12. Anwar Shaikh & Isabella Weber, 2018. "The U.S.-China Trade Balance and the Theory of Free Trade: Debunking the Currency Manipulation Argument," Working Papers 1805, New School for Social Research, Department of Economics.
    13. Anton Brender & Florence Pisani, 2010. "La crise de la finance globalisée," Économie et Statistique, Programme National Persée, vol. 438(1), pages 85-104.
    14. Stahler Kevin & Subramanian Arvind, 2014. "Versailles Redux? Eurozone Competitiveness in a Dynamic Balassa-Samuelson-Penn Framework," Journal of Globalization and Development, De Gruyter, vol. 5(2), pages 129-176, December.
    15. Zhang, Zhibai, 2012. "A simple model and its application in currency valuation," MPRA Paper 40650, University Library of Munich, Germany.
    16. repec:eee:jimfin:v:81:y:2018:i:c:p:88-115 is not listed on IDEAS
    17. repec:eee:jimfin:v:77:y:2017:i:c:p:18-38 is not listed on IDEAS
    18. Yoonbai Kim & Gil Kim, 2012. "The Renminbi Debate: A Review of Issues and Search for Resolution," Chapters,in: Asian Responses to the Global Financial Crisis, chapter 4 Edward Elgar Publishing.
    19. 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.

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