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Understanding the behavioral equilibrium exchange rate model via its application to the valuation of Chinese renminbi

Zhang, Zhibai (2010): Understanding the behavioral equilibrium exchange rate model via its application to the valuation of Chinese renminbi.

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Abstract

In this paper, the behavioral equilibrium exchange rate (BEER) model used in a time-series setting is investigated, via its application to the valuation of Chinese renminbi. A classical definition with its generalization is given. The different misalignment results derived from the BEER models are proven to result from the different econometric component choices. It is found that some of the misalignment results are consistent with Chinese economic facts, but some others are not. Finally, four main flaws unavoidable under the BEER model are given and analyzed.

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