The Optimal Path of the Chinese Renminbi

Philippe Dupuy () and Jean-Etienne Carlotti

MPRA Paper from University Library of Munich, Germany

Abstract: This paper provides evidence on the consistency of the determination of the Chinese real effective exchange rate (REER) over time. Especially, we validate coin- tegration between the REER and a set of fundamentals using recent developments in model selection. Error correction model (ECM) path dependence in model se- lection is addressed by using the General-To-Specific (GETS) approach enabling us to obtain empirically constant and encompassing ECM. As inference in finite sam- ples is commonly of concern, statistics' distributional properties for cointegration tests are estimated by Monte Carlo simulations. The final specification of the model is compatible with the natural real exchange rate of Stein (1994). We study the implications of our findings in terms of foreign exchange policy.

Keywords: Exchange Rate; Equilibrium value; GETS; Global Imbalances (search for similar items in EconPapers)
JEL-codes: F31 F36 (search for similar items in EconPapers)
Date: 2010-02
New Economics Papers: this item is included in nep-mon
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