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
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: Suggested Citation