Estimating China's "Equilibrium" Real Exchange Rate

October 1, 2005

Preview Citation

Format: Chicago

Xiangming Li, and Steven V Dunaway. Estimating China's "Equilibrium" Real Exchange Rate, (USA: International Monetary Fund, 2005) accessed December 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Balance of payments, Current account balance, Exchange rate adjustments, Exchange rates, Foreign exchange, Purchasing power parity, Real exchange rates

Keywords: Balassa-Samuelson effect, CPI, Current account balance, Current account position, Equilibrium exchange rate, Exchange rate, Exchange rate adjustments, Exchange rates, Foreign exchange, Nominal exchange rate, PPI, PPI ratio, PPP approach, PPP equation, Purchasing power parity, Purchasing power parity method, Real exchange rates, WP

Publication Details

Pages:

12
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2005/202
Stock No:

WPIEA2005202
ISBN:

9781451862218
ISSN:

1018-5941

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