Just How Undervalued is the Chinese Renminbi?

Michael Funke and Jörg Rahn

The World Economy, 2005, vol. 28, issue 4, 465-489

Abstract: Given that the value of China's currency has been a hot topic recently, this paper explores the equilibrium levels of China's real and nominal exchange rates. Employing a Johansen cointegration framework, we focus on the behavioural equilibrium exchange rate (BEER) and permanent equilibrium exchange rate (PEER) models. Our results suggest that, while the renminbi is somewhat undervalued against the dollar, the misalignment is not nearly as exaggerated as many popular claims.

Date: 2005
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