Estimating China's 'Equilibrium' Real Exchange Rate

12 Pages Posted: 3 Mar 2006

See all articles by Steven Dunaway

Steven Dunaway

International Monetary Fund (IMF) - Western Hemisphere Department

Xiangming Li

International Monetary Fund (IMF)

Date Written: October 2005

Abstract

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.

Keywords: Exchange rates, foreign exchange

JEL Classification: F31

Suggested Citation

Dunaway, Steven and Li, Xiangming, Estimating China's 'Equilibrium' Real Exchange Rate (October 2005). IMF Working Paper No. 05/202, Available at SSRN: https://ssrn.com/abstract=888071

Steven Dunaway (Contact Author)

International Monetary Fund (IMF) - Western Hemisphere Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Xiangming Li

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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