October 30, 2006
Is the renminbi undervalued?
A debate has raged whether and to what extent the renminbi has been undervalued.
To answer this question this memorandum is first interested in the level of China’s “equilibrium” (real effective) exchange rate.
Secondly, this memorandum is interested in the methodology to determine the equilibrium exchange rate.
A survey of the literature concludes toward a renminbi undervaluation of about 25% in real effective terms. This undervaluation is not expected to disappear any time soon.
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Authors
Jan Lemmen