CHINA'S EQUILIBRIUM REAL EXCHANGE RATE: A COUNTERFACTUAL ANALYSIS
Iain Bain () and
Pacific Economic Review, 2008, vol. 13, issue 1, 17-39
Abstract. China's ‘equilibrium’ real effective exchange rate is explored using an adaptation of the Devarajan‐Lewis‐Robinson three‐good general equilibrium model under a variety of assumptions about the balance of trade. The absence of secondary indices of import and export prices necessitates their construction from trade data. Some undervaluation is suggested in the lead‐up to and during the financial crisis, due in part to an extraordinary accumulation of foreign reserves following exchange rate integration in 1994. If, instead, China had run a more typical trade balance prior to the crisis its real effective exchange rate would have been higher by about a tenth.
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Working Paper: China’s Equilibrium Real Exchange Rate: A Counterfactual Analysis (2006)
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