IDEAS home Printed from https://ideas.repec.org/p/wdi/papers/2008-934.html
   My bibliography  Save this paper

Yuan Real Exchange Rate Undervaluation, 1997-2006. How Much, How Often? Not Much, Not Often

Author

Listed:
  • Jeff Chen
  • Wende Deng
  • David Kemme

Abstract

Yuan real effective exchange rate misalignment is esitimated in a behavioral equilibrium exchange rate (BEER) model for the period 1997 to third quarter 2007. Using the Beveridge-Nelson decomposition a vector error correction model (VECM) of the exchange rate as a function of macroeconomic fundamentals, including government expenditures, economic openness, the balance of trade surplus, and net foreign assets, is estimated. We find that the Chinese Yuan has been fluctuating moderately around its long run equilibrium value with undervaluation up to 4% and overvaluation up to 6% at various points in time since 1997. This result is consistent with findings of many of the most recent studies employing alternative econometric methodologies to determine the equilibrium exchange rate. While the Yuan real effective exchange rate has deviated from equilibrium, and it is sticky, taking over five years to correct 50% of the short run misalignment, it does not appear to have been consistently undervalued as has been widely argued.

Suggested Citation

  • Jeff Chen & Wende Deng & David Kemme, 2008. "Yuan Real Exchange Rate Undervaluation, 1997-2006. How Much, How Often? Not Much, Not Often," William Davidson Institute Working Papers Series wp934, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2008-934
    as

    Download full text from publisher

    File URL: http://deepblue.lib.umich.edu/bitstream/2027.42/64348/1/wp934.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yin-Wong Cheung & Shi He, 2019. "Truths and Myths About RMB Misalignment: A Meta-analysis," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 61(3), pages 464-492, September.
    2. Bineau, Yannick, 2010. "Renminbi's misalignment: A meta-analysis," Economic Systems, Elsevier, vol. 34(3), pages 259-269, September.

    More about this item

    Keywords

    Chinese Yuan; Exchange Rate; Misalignment; BEER; Behavioral; Cointegration; ARIMA; VECM; FGLS.;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • P33 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wdi:papers:2008-934. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: WDI (email available below). General contact details of provider: https://edirc.repec.org/data/wdumius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.