Estimating China's "Equilibrium" Real Exchange Rate
IMF Working Papers, October 1, 2005
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- Estimating China's "Equilibrium" Real Exchange Rate
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Bibliographic details
- Authors: Xiangming Li, Steven V Dunaway
- Published: October 1, 2005
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451862218.001
Summary
- 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 seek to establish whether a significant part of China's competitive prowess can be attributed to the foreign exchange value of the renminbi.
- No consensus has emerged because the studies yield a very wide range of estimates.
Key findings
- Sampled studies produce estimates of undervaluation ranging from zero to nearly 50 percent.
- The wide variation in estimates is attributed to multiple influences:
- different methodologies used;
- explanatory variables included;
- subjective judgments of the various researchers in deriving their results;
- instability in underlying economic relationships, especially in a rapidly developing economy like China.
Analytical focus and concepts
- Primary analytical themes and technical terminology preserved from the source:
- Balance of payments
- Current account balance; current account position
- Exchange rate adjustments; Exchange rates; nominal exchange rate; Real exchange rates
- Foreign exchange
- Purchasing power parity; PPP approach; PPP equation; purchasing power parity method
- Balassa-Samuelson effect
- CPI; PPI; PPI ratio
- Equilibrium exchange rate