Estimating Currency Misalignment Using the Penn Effect: It’s Not as Simple As It Looks
Yin-Wong Cheung,
Menzie Chinn and
Xin Nong
No 22539, NBER Working Papers from National Bureau of Economic Research, Inc
Abstract:
We investigate the strength of the Penn effect in the most recent version of the Penn World Tables (PWTs). We find that the earlier findings of a Penn effect are confirmed, but that there is some evidence for nonlinearity. Developed and developing countries display different types of nonlinear behaviors. The nonlinear behaviors are likely attributable to differences across countries and do not change when additional control variables are added. We confirm earlier findings of large RMB misalignment in the mid-2000’s, but find that by 2011, the RMB seems near equilibrium. While the Penn effect is quite robust across datasets, estimated misalignment can noticeably change from a linear to a nonlinear specification, and from dataset to dataset.
JEL-codes: F3 F4 (search for similar items in EconPapers)
Date: 2016-08
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Published as Yin-Wong Cheung & Menzie Chinn & Xin Nong, 2017. "Estimating currency misalignment using the Penn effect: It is not as simple as it looks," International Finance, vol 20(3), pages 222-242.
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