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The Optimal Path of the Chinese Renminbi

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  • Dupuy, Philippe
  • Carlotti, Jean-Etienne

Abstract

This paper provides evidence on the consistency of the determination of the Chinese real effective exchange rate (REER) over time. Especially, we validate coin- tegration between the REER and a set of fundamentals using recent developments in model selection. Error correction model (ECM) path dependence in model se- lection is addressed by using the General-To-Specific (GETS) approach enabling us to obtain empirically constant and encompassing ECM. As inference in finite sam- ples is commonly of concern, statistics' distributional properties for cointegration tests are estimated by Monte Carlo simulations. The final specification of the model is compatible with the natural real exchange rate of Stein (1994). We study the implications of our findings in terms of foreign exchange policy.

Suggested Citation

  • Dupuy, Philippe & Carlotti, Jean-Etienne, 2010. "The Optimal Path of the Chinese Renminbi," MPRA Paper 26107, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:26107
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    References listed on IDEAS

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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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