Estimating the Impact of China’s Central Bank Intervention on the RMB/US$ Exchange Rate Misalignment

The paper studies the misalignment path of RMB/US$ exchange rate, focusing on managed floating period since July 2005 and determining impact central bank’s intervention misalignment. We adopt permanent-and-transitory component decomposition approach developed by Gonzalo Granger (1995) to estimate equilibrium rate its within a vector error correction model (VECM). sample for our study is quarterly data some fundamental variables US China between 1st quarter 2000 2nd 2020. results show trend reducing undervaluation during period, going from 41% 35%. government substantially increased RMB undervaluation, an average 5% 39% without accounting weak exogeneity intervention, but 25.8% after exogeneity.