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A twelve-area model for the equilibrium Chinese Yuan/US dollar nominal exchange rate

A twelve-area model for the equilibrium Chinese Yuan/US dollar nominal exchange rate

You, Kefei ORCID: 0000-0001-7253-5838 and Sarantis, Nicholas (2011) A twelve-area model for the equilibrium Chinese Yuan/US dollar nominal exchange rate. Journal of International Financial Markets, Institutions and Money, 22 (1). pp. 151-170. ISSN 1042-4431 (doi:https://doi.org/10.1016/j.intfin.2011.08.005)

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Abstract

This paper investigates the equilibrium CNY/USD nominal exchange rate during 1976–2008. We extend for the first time the five-area FABEER model to a twelve-area TABEER model for China. All parameters are estimated with allowance for endogenous structural breaks. Our investigation of the sustainable current account highlights macroeconomic factors that determine savings and investment in the medium-term. We find that all cointegration relationships are subject to structural breaks. The equilibrium nominal rate was overvalued in most years from early 1990s until 2003. It has been strongly undervalued during 2004–2008. We further compute misalignment rates using a sustainable current account of 3%. Our findings suggest such exogenous input leads to results biased towards larger undervaluation.

Item Type: Article
Uncontrolled Keywords: Fundamental equilibrium exchange rate; TABEER model; Nominal CNY/USD; Structural breaks; China
Subjects: H Social Sciences > HB Economic Theory
Faculty / Department / Research Group: Faculty of Business
Faculty of Business > Department of Accounting & Finance
Last Modified: 27 Feb 2019 16:01
Selected for GREAT 2016: None
Selected for GREAT 2017: None
Selected for GREAT 2018: None
Selected for GREAT 2019: None
URI: http://gala.gre.ac.uk/id/eprint/16265

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