Working Paper: NBER ID: w14168
Authors: Yinwong Cheung; Menzie D. Chinn; Eiji Fujii
Abstract: 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 point estimates usually indicate economically significant 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.
Keywords: Exchange Rate Misalignment; Renminbi; Statistical Methods; Purchasing Power Parity
JEL Codes: F31; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Updated data set (Y10) | Estimated misalignment detected in earlier studies disappears (C51) |
| Point estimates suggest undervaluation (C13) | Statistical significance is weak (C12) |
| Empirical models and data not sharp enough (C59) | Lack of strong evidence for significant undervaluation (D46) |
| Sampling uncertainty and serial correlation accounted for (C22) | Little statistical evidence that the RMB is undervalued (F31) |
| Control for serial correlation (C22) | Extent of misalignment is not statistically significant at the 5% level (C29) |