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Understanding the behavioral equilibrium exchange rate model via its application to the valuation of Chinese renminbi

  • Zhang, Zhibai

In this paper, the behavioral equilibrium exchange rate (BEER) model used in a time-series setting is investigated, via its application to the valuation of Chinese renminbi. A classical definition with its generalization is given. The different misalignment results derived from the BEER models are proven to result from the different econometric component choices. It is found that some of the misalignment results are consistent with Chinese economic facts, but some others are not. Finally, four main flaws unavoidable under the BEER model are given and analyzed.

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File URL: https://mpra.ub.uni-muenchen.de/40648/1/MPRA_paper_40648.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40648.

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Date of creation: 01 Jan 2010
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Handle: RePEc:pra:mprapa:40648
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  1. Balázs Égert, & László Halpern & Ronald MacDonald, 2005. "Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues," William Davidson Institute Working Papers Series wp793, William Davidson Institute at the University of Michigan.
  2. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2007. "The Overvaluation of Renminbi Undervaluation," CESifo Working Paper Series 1918, CESifo Group Munich.
  3. Zhang, Zhichao, 2001. "Real Exchange Rate Misalignment in China: An Empirical Investigation," Journal of Comparative Economics, Elsevier, vol. 29(1), pages 80-94, March.
  4. 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.
  5. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
  6. Baffes, John & Elbadawi, Ibrahim A. & O'Connell, Stephen A., 1997. "Single-equation estimation of the equilibrium real exchange rate," Policy Research Working Paper Series 1800, The World Bank.
  7. Clark, Peter B. & MacDonald, Ronald, 2004. "Filtering the BEER: A permanent and transitory decomposition," Global Finance Journal, Elsevier, vol. 15(1), pages 29-56.
  8. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
  9. Ming He Goh & Yoonbai Kim, 2006. "Is The Chinese Renminbi Undervalued?," Contemporary Economic Policy, Western Economic Association International, vol. 24(1), pages 116-126, 01.
  10. Ronald MacDonald & Peter B. Clark, 1998. "Exchange Rates and Economic Fundamentals; A Methodological Comparison of Beers and Feers," IMF Working Papers 98/67, International Monetary Fund.
  11. Lamin Leigh & Steven Vincent Dunaway & Xiangming Li, 2006. "How Robust Are Estimates of Equilibrium Real Exchange Rates; The Case of China," IMF Working Papers 06/220, International Monetary Fund.
  12. Wang, Yajie & Hui, Xiaofeng & Soofi, Abdol S., 2007. "Estimating renminbi (RMB) equilibrium exchange rate," Journal of Policy Modeling, Elsevier, vol. 29(3), pages 417-429.
  13. Chang, Gene Hsin & Shao, Qin, 2004. "How much is the Chinese currency undervalued? A quantitative estimation," China Economic Review, Elsevier, vol. 15(3), pages 366-371.
  14. 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.
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