The Renminbi Equilibrium Exchange Rate: An Agnostic View

National Bank of Poland's Journal on Economics and Finance, No. 8-9, pp. 25-41, 2007

17 Pages Posted: 10 Mar 2008

See all articles by Antoine Bouveret

Antoine Bouveret

European Securities and Markets Authority

Sana Mestiri

affiliation not provided to SSRN

Henri Sterdyniak

Observatoire Français des Conjonctures Economiques (OFCE)

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Abstract

The alleged undervaluation of the renminbi has been the subject of intensive academic research over the past few years. Using equilibrium exchange rate models many authors have concluded that the renminbi is undervalued by 15 to 30% against the US dollar. Yet China has been experiencing strong economic growth for a decade and does not seem to suffer from the supposed misalignment of its exchange rate, with low inflation rate and current account surpluses. The estimations assume that the economy is at full-employment, a strong hypothesis for China, where unemployment amounts to 150 million people. This article claims that a low exchange rate is suited for the objectives of Chinese economic policy. The exchange rate can be undervalued according to traditional models and in equilibrium compared to the government's policy objectives as shown by a theoretical model.

Keywords: equilibrium exchange rate, developing country exchange rate, China economic strategy

JEL Classification: F31, F42, O24

Suggested Citation

Bouveret, Antoine and Mestiri, Sana and Sterdyniak, Henri, The Renminbi Equilibrium Exchange Rate: An Agnostic View. Available at SSRN: https://ssrn.com/abstract=1103427

Narodowy Bank Polski (Contact Author)

Narodowy Bank Polski ( email )

ul. Swietokrzyska 11/21
Warszawa, 00-919
Poland
48 22 185 28 52 (Phone)

HOME PAGE: http://www.nbp.pl/homen.aspx?f=/en/publikacje/materialy_i_studia/informacja_en.html

Narodowy Bank Polski ( email )

ul. Swietokrzyska 11/21
Warszawa, 00-919
Poland
48 22 185 28 52 (Phone)

HOME PAGE: http://www.nbp.pl/homen.aspx?f=/en/publikacje/materialy_i_studia/informacja_en.html

Antoine Bouveret

European Securities and Markets Authority ( email )

103 Rue de Grenelle
Paris, IDF 75007
France

HOME PAGE: http://www.esma.europa.eu

Sana Mestiri

affiliation not provided to SSRN ( email )

Henri Sterdyniak

Observatoire Français des Conjonctures Economiques (OFCE) ( email )

69 Quai d'Orsay
Paris 75007
France

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