Determining Yuan Valuation- An Extension of the IMF External Balance Assessment Approach

摘要

This paper applies the IMF EBA methodology to a China-specific time series analysis, using a 2SLS instrumented regression with Newey-West standard errors to determine the policy gap that results from PBOC intervention. We find the impact of reserve accumulation to be more significant in magnitude than indicated by the EBA, demonstrating a modest improvement in accuracy with the introduction of central bank liquidity swaps as a novel instrument. Evidence of a long term equilibrium relationship is also found between the real effective exchange rate and reserve accumulation, with the presence of medium level capital controls.