Comparison And Empirical Analysis Of Methodologies In Equilibrium Exchange Rate

The ambition of this paper is to provide a thorough overview of Equilibrium Exchange Ratesin China. Therefore, theoretical models of equilibrium exchange rates are reviewed first andpresented in a structured way. It argues that a variety of equilibrium exchange rates can bedefined and their behavior will vary according to different definitions of the exchange rate, andover short, medium and long-term horizons. It emphasizes that the relevance of each type willdepend on the question at hand. The behavior of different measures of equilibrium exchangerates is explained with reference to a range of theoretical models.It requires certain estimation methods to apply these measures of equilibrium exchange ratesin practice. These estimation methods comprise time series and panel.How to choose a proper measure of equilibrium exchange rate is a problem researcher face.Section 4 explains these criteria concretely.At last, we try to measure the size of a possible misalignment in the Chinese exchange rate intwo ways – structural model and single equation.The assessments on equilibrium exchange rate are not always very convincing, because theyrely on a large set assumptions. Therefore, it is advisable to check the results with differentmethods.