China's Equilibrium Real Exchange Rate: A Counter Factual Analysis

23 Pages Posted: 11 Jan 2008

See all articles by Rod Tyers

Rod Tyers

Australian National University (ANU) - School of Economics; The University of Western Australia - Department of Economics

Iain Bain

affiliation not provided to SSRN

Yongxiang Bu

affiliation not provided to SSRN

Abstract

China's equilibrium real effective exchange rate is explored using an adaptation of the Devarajan-Lewis-Robinson three-good general equilibrium model under a variety of assumptions about the balance of trade. The absence of secondary indices of import and export prices necessitates their construction from trade data. Some undervaluation is suggested in the lead-up to and during the financial crisis, due in part to an extraordinary accumulation of foreign reserves following exchange rate integration in 1994. If, instead, China had run a more typical trade balance prior to the crisis its real effective exchange rate would have been higher by about a tenth.

Suggested Citation

Tyers, Rod and Bain, Iain and Bu, Yongxiang, China's Equilibrium Real Exchange Rate: A Counter Factual Analysis. Pacific Economic Review, Vol. 13, Issue 1, pp. 17-39, February 2008, Available at SSRN: https://ssrn.com/abstract=1082632 or http://dx.doi.org/10.1111/j.1468-0106.2007.00387.x

Rod Tyers (Contact Author)

Australian National University (ANU) - School of Economics ( email )

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The University of Western Australia - Department of Economics ( email )

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HOME PAGE: http://www.business.uwa.edu.au/school/staff-profiles?type=profile&dn=cn%3DRodney%20Tyers%2Cou%3DEcon

Iain Bain

affiliation not provided to SSRN

No Address Available

Yongxiang Bu

affiliation not provided to SSRN

No Address Available

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