BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 22/2011:
Exchange rate misalignments: A comparison of China today against recent historical experiences of Japan, Germany, Singapore and Taiwan
Xinhua ´He ()
, Duo Qin and Yimeng Liu
Abstract: The familiar claim of Chinese currency manipulation is
generally asserted without reference to empirical evidence. To investigate
the legitimacy of the claim, we ask if the undervalued misalignment found
in the real effective exchange rate (REER) of the Chinese renminbi (RMB)
over the past decade has any recent historical precedents. Four cases are
examined: the Japanese yen, the Deutsche mark, the Singapore dollar and the
Taiwan dollar. Panel-based misalignment estimates of the REER of the four
currencies are obtained using quarterly data from the late 1970s to the
early 2000s. Our estimates suggest that there are precedents to the recent
misalignment of the RMB in terms of magnitude, duration or breadth of
currency coverage, and that a net build-up in foreign asset does not
necessarily result in currency misalignment. In addition to finding little
empirical justification for the claim of Chinese currency manipulation, we
note that REER misalignment runs a risk of propagating inflation in the
home economy.
Keywords: REER misalignment; RMB; yen; D-mark; Singapore dollar; Taiwan dollar; (follow links to similar papers)
JEL-Codes: C23; F31; F41; O57; (follow links to similar papers)
33 pages, August 22, 2011
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