Truths and Myths About RMB Misalignment: A Meta-analysis

Abstract

We conduct a meta-regression analysis of 69 studies that generated 937 renminbi (RMB) misalignment estimates. The Bayesian Model Averaging (BMA) approach is adopted to allow for model selection and sampling uncertainties in assessing effects of study characteristics on these RMB misalignment estimates. Misalignment estimates are found to be influenced by the eight selected study characteristic types in our median probability model. The RMB misalignment estimate from models with various hypothetical combinations of study characteristics, however, is mostly insignificantly different from zero. It is also shown that the set of significant study characteristics is sensitive to the use of the least squares estimation method and the choice of benchmark study characteristics.

A Tale of Two Surplus Countries: China and Germany

“…For instance, it is usually found that the Chinese exports and imports do not follow the textbook exchange rate effects and do not empirically satisfy the Marshall-Lerner conditionthat is, a strong RMB does not necessarily reduce surpluses (Cheung et al, 2012;Marquez and Schindler, 2007). 20 Further, it is reported that the Renminbi misalignment estimate can span a wide range that covers both under-and overvaluation (Bineau, 2010;Cheung and He, 2019). These findings, which are typically attributed to China's heavy-handed approach, imply that the link between currency misalignment and the current account surpluses is weak.…”

“…13 For some observers, the limited role of currency misalignment in China in the pre-crisis period may appear surprising, as there is an abundance of news reports on the alleged use of currency misalignment to stimulate exports. However, it is not uncommon that academic studies reported the Chinese exports and imports do not follow the textbook exchange rate effects and do not empirically satisfy the Marshall-Lerner condition (Cheung et al, 2012;Devereux and Genberg, 2007;Marquez and Schindler, 2007), and that the Renminbi misalignment estimate can span a wide range that covers both under-and overvaluation (Bineau, 2010;Cheung and He, 2019).…”

RMB misalignment: What does a meta‐analysis tell us?

“… 1 1 Bineau (2010) and Korhonen and Ritola (2011) consider 130 estimates from 17 studies and 99 estimates from 30 studies in their exercises, respectively. Cheung and He (2019) cover 937 misalignment estimates from 69 studies. All these meta‐analyses use RMB misalignment estimates in percentages. …”