Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You and Your Team.

Learn More →

Assessment on RMB valuation – a triangular analysis approach

Assessment on RMB valuation – a triangular analysis approach Purpose – The authors make assessment on RMB valuation and to contribute to the fierce debate on this important issue, which is perceived to have a great effect on the improvement or deterioration in trade balance. A triangular analysis approach is put forward and empirical assessment is made. The paper aims to discuss these issues. Design/methodology/approach – A triangular analysis approach based on no arbitrage conditions for three currencies, and causality and influence analysis. Findings – First, it has been found that the movements in the RMB dollar exchange rate do influence the dollar euro exchange rate and the former do have a causality effect on the latter, in both the long run and the short term. Second, it is implied that the RMB is overvalued vis‐à‐vis the US dollar, as the analysis suggests that an overvalued euro vis‐à‐vis the US dollar would imply a kind of overvaluation of the RMB vis‐à‐vis the US dollar, and by any conventional measures the euro has appeared to be overvalued vis‐à‐vis the US dollar, especially in the months before the last financial crisis. Practical implications – First, the peg of the RMB to the US dollar that undervalues the RMB vis‐à‐vis the US dollar will not help promote China's overall trade balance or export even if undervaluation of currencies can ever help improve nations' terms of trade. Second, no stability in RMB exchange rates can be claimed by pegging the RMB to the US dollar, as the exchange rate of the RMB vis‐à‐vis currencies other than the US dollar would be as volatile as that between the US dollar and the euro and other convertible currencies. Originality/value – A new triangular analysis approach in international finance research. First, there is an advantage to adopt this seemingly simple analytical framework: it is highly reliable; no triangular arbitrage conditions have to be met even under exchange controls, whilst PPP may not hold even with flexible exchange rate regimes. Second, it does away with the thinking confined to small open economies that has dominated academic research for so long and is totally inapplicable to the RMB case. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png China Finance Review International Emerald Publishing

Assessment on RMB valuation – a triangular analysis approach

China Finance Review International , Volume 4 (1): 20 – Feb 11, 2014

Loading next page...
 
/lp/emerald-publishing/assessment-on-rmb-valuation-a-triangular-analysis-approach-iZtFDHBgNN
Publisher
Emerald Publishing
Copyright
Copyright © 2014 Emerald Group Publishing Limited. All rights reserved.
ISSN
2044-1398
DOI
10.1108/CFRI-01-2013-0011
Publisher site
See Article on Publisher Site

Abstract

Purpose – The authors make assessment on RMB valuation and to contribute to the fierce debate on this important issue, which is perceived to have a great effect on the improvement or deterioration in trade balance. A triangular analysis approach is put forward and empirical assessment is made. The paper aims to discuss these issues. Design/methodology/approach – A triangular analysis approach based on no arbitrage conditions for three currencies, and causality and influence analysis. Findings – First, it has been found that the movements in the RMB dollar exchange rate do influence the dollar euro exchange rate and the former do have a causality effect on the latter, in both the long run and the short term. Second, it is implied that the RMB is overvalued vis‐à‐vis the US dollar, as the analysis suggests that an overvalued euro vis‐à‐vis the US dollar would imply a kind of overvaluation of the RMB vis‐à‐vis the US dollar, and by any conventional measures the euro has appeared to be overvalued vis‐à‐vis the US dollar, especially in the months before the last financial crisis. Practical implications – First, the peg of the RMB to the US dollar that undervalues the RMB vis‐à‐vis the US dollar will not help promote China's overall trade balance or export even if undervaluation of currencies can ever help improve nations' terms of trade. Second, no stability in RMB exchange rates can be claimed by pegging the RMB to the US dollar, as the exchange rate of the RMB vis‐à‐vis currencies other than the US dollar would be as volatile as that between the US dollar and the euro and other convertible currencies. Originality/value – A new triangular analysis approach in international finance research. First, there is an advantage to adopt this seemingly simple analytical framework: it is highly reliable; no triangular arbitrage conditions have to be met even under exchange controls, whilst PPP may not hold even with flexible exchange rate regimes. Second, it does away with the thinking confined to small open economies that has dominated academic research for so long and is totally inapplicable to the RMB case.

Journal

China Finance Review InternationalEmerald Publishing

Published: Feb 11, 2014

Keywords: Exchange rate; Euro; RMB; US dollar

References

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Search

Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly

Organize

Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.

Access

Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve

Freelancer

DeepDyve

Pro

Price

FREE

$49/month
$499/year

Save searches from
Google Scholar,
PubMed

Create folders to
organize your research

Export folders, citations

Read DeepDyve articles

Abstract access only

Unlimited access to over
18 million full-text articles

Print

20 pages / month