Real exchange rate misalignment in China: An empirical investigation

Based on the theory of equilibrium real exchange I-ate, this paper estimate s the behavioral equilibrium exchange rate and the resulting misalignment i n China. Evidence shows chronic overvaluation in Chinas central planning pe riod, but economic reforms have brought the real exchange rate closer to eq uilibrium. The cumulative effect of exchange rate reform led to a substanti al real depreciation of the Chinese currency after 1981. Indications are th at China now has a proactive exchange rate policy with the nominal exchange rate used as a policy tool to attain real targets. J. Comp. Econ.. March 2 001. 29(1), pp. 80-94. St. Antony's College, Oxford University, Oxford OX2 6JF, England. (C) 2001 Academic Press.