We evaluate whether the Renminbi (RMB) is misaligned, relying upon conventional statistical methods of inference. A framework built around the relationship between relative price and relative output levels is used. We find that, once sampling uncertainty and serial correlation are accounted for, there is little statistical evidence that the RMB is undervalued. The result is robust to various choices of country samples and sample periods, as well as to the inclusion of control variables.
Here is the paper.
My take: Even I don’t go quite that far. The authors attach more weight to purchasing power parity than I would, and not enough weight to what I call the "newspaper protestations" of investors and capital market analysts, who all seem to want into China. Nonetheless this paper has real arguments and real numbers. I see the value of the Chinese currency as vulnerable over time, and this piece is a useful corrective to the many exaggerated claims made on the other side of the debate.