Reestimation of The Renminbi

Reestimation of The Renminbi

In this paper, we analyze mainly the well-known relationship between deviation from absolute purchasing power parity and real per capita income by using panel regression models, and verify Balassa-Samuelson effects. We determine how much of the degree of misalignment of the renminbi (RMB) stands relative to the equilibrium real exchange rate using these methods. Although undervaluation or overvaluation of the RMB exists, most of the misalignments from the equilibrium exchange rate keep within two standard error bands. The Balassa-Samuelson effects are at work. Even considering the serial correlation and control variables (demographic variables, current account, M2/GDP, capital openness, corruption index, an interaction term), similar results can be obtained.