A New Assessment of the Chinese RMB Exchange Rate

Zhang, Zhibai and Chen, Langnan (2013): A New Assessment of the Chinese RMB Exchange Rate.

Abstract

The ratio, Penn effect and behavioral equilibrium exchange rate (BEER) are used to assess the level of the bilateral real exchange rate (RER) of the Chinese RMB against the US dollar in 1980–2012. The statistical indexes and economic meaning indicate that the findings from the BEER and ratio model are more reasonable. Based on the two models, the RMB was overvalued by 10–20% in 2011–2012. Given the already overvalued currency and the not-ideal economic situation of China, such a fast RER appreciation of 6.6–6.7% per year as it was in 2005–2012 is not sustainable. Further, corresponding policy proposals are given.

• Item Type: MPRA Paper
• Language: English
• Keywords: Chinese RMB, Misalignment, Ratio model, Penn effect, Behavioral equilibrium exchange rate
• Subjects: F - International Economics > F3 - International Finance > F31 - Foreign Exchange

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