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Estimating China's "Equilibrium" Real Exchange Rate

  • Xiangming Li
  • Steven Vincent Dunaway
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    The number of studies attempting to estimate the "equilibrium" real value of China's currency has proliferated in recent years as the country's presence in world markets has grown. These studies have sought to establish whether or not a significant part of China's competitive prowess can be attributed to the foreign exchange value of the renminbi. Unfortunately, no consensus has emerged because the studies yield a very wide range of estimates. The paper looks at a sample of these studies, with estimates of undervaluation ranging from zero to nearly 50 percent. It attributes the wide variation in these estimates to the influence of such factors as the different methodologies used, explanatory variables included, subjective judgments of the various researchers in deriving their results, and instability in underlying economic relationships, especially in a rapidly developing economy like China.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/202.

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    Length: 12
    Date of creation: 01 Oct 2005
    Date of revision:
    Handle: RePEc:imf:imfwpa:05/202
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    1. Eichengreen, Barry, 2004. "Chinese Currency Controversies," CEPR Discussion Papers 4375, C.E.P.R. Discussion Papers.
    2. Morris Goldstein, 2004. "Adjusting China's Exchange Rate Policies," Working Paper Series WP04-1, Peterson Institute for International Economics.
    3. repec:cai:recosp:reco_545_0001 is not listed on IDEAS
    4. Menzie D. Chinn & Eswar S. Prasad, 2000. "Medium-Term Determinants of Current Accounts in Industrial and Developing Countries: An Empirical Exploration," NBER Working Papers 7581, National Bureau of Economic Research, Inc.
    5. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
    6. Virginie Coudert & Cécile Couharde, 2005. "Real Equilibrium Exchange Rate in China," Working Papers 2005-01, CEPII research center.
    7. Frankel, Jeffrey, 2004. "On the Renminbi: The Choice between Adjustment under a Fixed Exchange Rate and Adustment under a Flexible Rate," Working Paper Series rwp04-037, Harvard University, John F. Kennedy School of Government.
    8. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
    9. Se-Eun Jeong & Jacques Mazier, 2003. "Exchange Rate Regimes and Equilibrium Exchange Rates in East Asia," Revue économique, Presses de Sciences-Po, vol. 54(5), pages 1161-1182.
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