Pitfalls in measuring exchange rate misalignment : The Yuan and other currencies

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)183-206
Journal / PublicationOpen Economies Review
Issue number2
Publication statusPublished - 2009
Externally publishedYes


We evaluate whether the Renminbi (RMB) is misaligned, relying upon conventional statistical methods of inference. A framework built around the relationship between relative price and relative output levels is used. We find that, once sampling uncertainty and serial correlation are accounted for, there is little statistical evidence that the RMB is undervalued, even though the usual regression point estimates indicate substantial misalignment. The result is robust to various choices of country samples and sample periods, as well as to the inclusion of control variables. We then update the results using the latest vintage of the data to demonstrate how fragile the results are. We find that whatever misalignment we detected in our previous work disappears in this data set. © Springer Science+Business Media, LLC 2008.

Research Area(s)

  • Absolute purchasing power parity, Capital controls, Currency misalignment, Exchange rates, Real income