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2005•The International Trade JournalRequires access

An Empirical Analysis on RMB Real Exchange Rate and Terms of Trade

Sun Zhao-min

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Abstract

Based on the theories of equilibrium exchange rate and used real economic fundamentals, this paper estimates RMB's real equilibrium exchange rate, analyses RMB's misalignment through cointegration model and the relations between RMB's real exchange rate and terms of trade in different periods in China from 1980 to 2002. The amelioration or deterioration of terms of trade is one of the main reasons which would lead to overvaluation or undervaluation of RMB's real exchange rate. But in different development periods of China, terms of trade have different influences on RMB's real exchange rate.

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What this paper is about

Based on the theories of equilibrium exchange rate and used real economic fundamentals, this paper estimates RMB's real equilibrium exchange rate, analyses RMB's misalignment through cointegration model and the relations between RMB's real exchange rate and terms of trade in different periods in China from 1980 to 2002. The amelioration or deterioration of terms of trade is one of the main reasons which would lead to overvaluation or undervaluation of RMB's real exchange rate. But in different development periods of China, terms of trade have different influences on RMB's real exchange rate.

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Available abstract

Based on the theories of equilibrium exchange rate and used real economic fundamentals, this paper estimates RMB's real equilibrium exchange rate, analyses RMB's misalignment through cointegration model and the relations between RMB's real exchange rate and terms of trade in different periods in China from 1980 to 2002. The amelioration or deterioration of terms of trade is one of the main reasons which would lead to overvaluation or undervaluation of RMB's real exchange rate. But in different development periods of China, terms of trade have different influences on RMB's real exchange rate.

Key concepts: Renminbi, Cointegration, Exchange rate, Economics, China, Effective exchange rate, International economics, Monetary economics

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