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The Illusion of Precision and the Role of the Renminbi in Regional Integration

Yin-Wong Cheung, Menzie Chinn and Eiji Fujii

No 182006, Working Papers from Hong Kong Institute for Monetary Research

Abstract: The debate on renminbi (RMB) revaluation has not subsided, despite the policy change announced by the Chinese authorities in July 2005. In this chapter, we show that the evidence of RMB undervaluation may not be as strong as it appears. Specifically, depending on the method used, the evidence ranges from slight overvaluation to undervaluation. Even in the case of undervaluation, the results are not significant in the statistical sense. We also note that China is playing an important economic role in Asia and has established a complex production and trade network with its neighboring economies, which complicates the calculation of the equilibrium exchange rate. Thus, a change in Chinese exchange rate policy in response to demands from foreign countries and short-run considerations may have undesirable effects on the economies of China and the Asian region.

Keywords: exchange rate policy; regional integration; market integration; purchasing power parity; Balassa-Samuelson; currency misalignment. (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2006-12
New Economics Papers: this item is included in nep-cna, nep-ifn, nep-mon and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Chapter: The Illusion of Precision and the Role of the Renminbi in Regional Integration (2009) Downloads
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