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The Debt-adjusted Real Exchange Rate for China

Jan Frait () and Lubos Komarek ()

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: The paper aims to enrich the debate on the overvaluation/undervaluation of China yuan Renminbi (CNY) against USD and JPY by applying the concept of the Debt-Adjusted Real Exchange Rate (DARER). This approach is offering to monetary policy makers another indicator for more responsive management of this important economic variable. The general motivation for constructing DARER is the fact that long-term current account surplus (deficits) is linked with capital outflows (inflows), which often leads to real undervaluation (overvaluation) of domestic currency. DARER can signal to the authorities that the real exchange rate is becoming unsustainable in the medium term. Based on the DARER approach we also introduce three indicators of exchange rate misalignment.

Keywords: Exchange rate; current account; misalignment; China; DARER (search for similar items in EconPapers)
JEL-codes: E58 F31 F32 F37 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-cna, nep-ifn, nep-mac, nep-mon and nep-opm
Date: 2008
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https://warwick.ac.uk/fac/soc/economics/research/w ... s/2008/twerp_850.pdf

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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:850

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