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HOW ROBUST ARE ESTIMATES OF EQUILIBRIUM REAL EXCHANGE RATES: THE CASE OF CHINA
Author(s) -
Dunaway Steven,
Leigh Lamin,
Li Xiangming
Publication year - 2009
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/j.1468-0106.2009.00455.x
Subject(s) - economics , exchange rate , econometrics , robustness (evolution) , variance (accounting) , china , estimation , value (mathematics) , statistics , mathematics , macroeconomics , biochemistry , chemistry , accounting , management , political science , law , gene
. Assessments of a country's real exchange rate relative to its ‘equilibrium’ value as suggested by ‘fundamental’ determinants have received increasing attention. Using China as an example, the present paper illustrates models commonly used to derive equilibrium real exchange rate estimates. The large variance in the estimates raises serious questions about the robustness of these results. The basic conclusion is that, at least for China, small changes in model specifications, explanatory variable definitions, and time periods used in estimation can lead to very substantial differences in equilibrium real exchange rate estimates. Therefore, such estimates should be treated with great caution.