Abstract

http://ssrn.com/abstract=1774077
 


 



The RMB Undervaluation Puzzle: An Input-Output Analysis (in Chinese)


Xiang Tang


Peking University - School of Economics

March 1, 2011


Abstract:     
The “RMB undervaluation puzzle” refers to two related facts: 1) that the RMB real exchange rate has been depreciating along with China’s strong economic growth; 2) that most Western researchers agree that the RMB is seriously undervalued in recent years. We propose that this puzzle is mainly caused by an inter-regional race to the bottom in China, which reduces average input usage and labor cost, thus seriously depressing the general price and wage level through three types of “price multiplier effects”. We extend the standard input-output model to simulate the price-level effect of racing to the bottom in two key sectors (road transportation and coal mining), using actual input-output data. The results show that, quantitatively, our model can fully explain the “RMB undervaluation puzzle”. The implication is that in order for the RMB real exchange rate to reach and remain at a proper level, inter-regional race to the bottom in China must be effectively tackled, which entails a radical overhaul of China’s economic system and the transition of its development model.

内容摘要:所谓“人民币低估之谜”,包含两方面事实:一是人民币实际汇率随经济增长而持续贬值,二是西方学界普遍认为人民币实际汇率近年来存在大幅度低估。本文认为,中国日益恶化的地区间竞次,导致各部门单位产出的中间投入和工资成本有不断下降趋势,进而通过三种价格乘数效应严重压低了中国的物价和工资水平,是产生“人民币低估之谜”的主要原因。本文对标准的投入产出模型加以拓展,以两个在中国存在严重竞次现象的部门(公路货运业和煤炭开采业)作为案例,利用投入产出表来模拟竞次的价格水平效应。模拟结果显示,竞次从定量分析上可以充分解释“人民币低估之谜”。本文表明,要使人民币实际汇率达到并维持在一合理水平,必须对中国的地区间竞次加以有效治理,这要求中国经济体制的全面改革和经济发展模式的转型。

Note: Downloadable document is in Chinese.

Number of Pages in PDF File: 18

Keywords: the RMB real exchange rate, race to the bottom, input-output model

JEL Classification: F31, L51, D57

working papers series


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Date posted: March 3, 2011  

Suggested Citation

Tang, Xiang, The RMB Undervaluation Puzzle: An Input-Output Analysis (in Chinese) (March 1, 2011). Available at SSRN: http://ssrn.com/abstract=1774077 or http://dx.doi.org/10.2139/ssrn.1774077

Contact Information

Xiang Tang (Contact Author)
Peking University - School of Economics ( email )
Peking University
School of Economics
Beijing, 100871
China
8610 62752321 (Phone)
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