Exchange Rate Misalignment - The Case of the Chinese Renminbi

25 Pages Posted: 3 May 2012

See all articles by Yin-Wong Cheung

Yin-Wong Cheung

University of California, Santa Cruz - Department of Economics

Date Written: April 30, 2012

Abstract

Assessing exchange rate misalignment is not an easy task. With reference to the debate on the value of China’s currency, the renminbi (RMB), this article highlights a few challenges in properly assessing the extent of currency misalignment. The results derived from the fundamental equilibrium exchange rate (FEER) approach and the Penn effect regression are used to illustrate the sensitivity of misalignment estimate to assumptions of the key parameters in a given model, sampling uncertainty, serial correlation adjustment, and data revision. It is shown that both the sign and the magnitude of a misalignment estimate could be dramatically affected by these factors.

Keywords: FEER, Penn effect, sampling uncertainty, serial correlation, data revision

JEL Classification: F310, F410

Suggested Citation

Cheung, Yin-Wong, Exchange Rate Misalignment - The Case of the Chinese Renminbi (April 30, 2012). CESifo Working Paper Series No. 3797, Available at SSRN: https://ssrn.com/abstract=2050316 or http://dx.doi.org/10.2139/ssrn.2050316

Yin-Wong Cheung (Contact Author)

University of California, Santa Cruz - Department of Economics ( email )

Engineering 2, Department of Economics
University of California
Santa Cruz, CA 95064
United States
831-459-5077 (Fax)

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