Coudert and Couharde 2005 Goldstein and Lardy % 36% Cline and Williamson 2007 Penn World Table = 100 Krugman 2009 Berg

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1 * / % enhanced-ppp % Bosworth 2004 Coudert and Couharde 2005 Frankel 2006 Subramanian * tangxiang_pku@ 163. com

2 Coudert and Couharde 2005 Goldstein and Lardy % 36% Cline and Williamson 2007 Penn World Table = 100 Krugman 2009 Bergsten / 109

3 % 30% 24% 44% 30% 55% 40% 120% 2005 race to the bottom / Process and Production Methods PPMs A B A B A B B A B A A B A B

4 Chan % I II III 2 p 1 p 2 p 3 p 4 4 p w ω w ω I w 1 111

5 2 p 1 p 2 p n p II ω I I p p w w p 1 p 2 p n I p p III ω ω ω w p ω ω w p ω 1% w p 4% 3% 1% = 4% - 3% w p ω w p ω w p 90 II III I I II III 2% 20% 70% 112

6 % 20. 6% 14. 5% / / % % 100%

7 % 69. 5% % a. 65 b c d e /

8 % 80% % 25% 30% % 21% % 3. 5% % 48% % / / Ax + y = x A i j a ij j i x y 1 1 A x y

9 j p 1 p 2 p n l j t j d j r j j j p j = a 1j p 1 + a 2j p a nj p n + l j + t j + d j + r j 2 w q t q d q r t j d j r j 2 p j = a 1j p 1 + a 2j p a nj p n + l j w + t j q t + d j q d + r j q r 3 p 1 p 2 p n w q t q d q r = a 1j + a 2j + + a nj + l j + t j + d j + r j 4 3 p = A'p + lw + tq t + dq d + rq r 5 A A l t d r I p = I - A' -1 lw + tq t + dq d + rq r % A p = I - A' -1 lw + tq t + dq d + rq r + gq g 7 g A 7 q g A 96 l % w q t q d q r q g 68% 0. 5% I w q t q d q r q g % 76% % % 37

10 y 2. 55% 1. 9% 11% 1. 3% II w q t q d q r ω t d r r r 7 2 w q t q d q r 7. 3% 82% I II 6. 8% % % 114% I II 9. 7% 25. 4% % 7. 2% I II 18. 6% 37. 3% III ω ω ω ω 1 ω ω 2% 2 w p 6% 7% 4% 5% 24% 44% 20% 30% % 10% A 105% 110%

11 % % 2% 2% 2% %

12 % 120% 30% 55% % 40% 20% % % 44% 15% 21% 5% 11% SSRN http / / papers. ssrn. com / sol3 / papers. cfm abstract_id =

13 http / / www. caogen. com / blog / Infor _ detail. aspx ID = 18&articleId = Bergsten C. Fred Correcting the Chinese Exchange Rate An Action Plan Testimony before the Committee on Ways and Means US House of Representatives March 24. Bosworth Barry 2004 Valuing the Renminbi Paper presented to the Tokyo Club Research Meeting February. Chan Anita 2003 A Race to the Bottom Globalization and China s Labour Standards China Perspectives Cline William R. and John Williamson 2007 Estimates of the Equilibrium Exchange Rate of the Renminbi Is There a Consensus and If Not Why Not Paper presented at the Conference on China s Exchange Rate Policy Peterson Institute Washington DC October. Coudert V. and C. Couharde 2005 Real Equilibrium Exchange Rate in China CEPII Working Paper No Paris. Frankel Jeffrey 2006 On the Yuan The Choice between Adjustment under a Fixed Exchange Rate and Adjustment under a Flexible Rate CESifo Economic Studies. Goldstein Morris and Nicholas Lardy 2006 China s Exchange Rate Policy Dilemma American Economic Review 96 2 May Krugman Paul 2009 The Chinese Disconnect New York Times October 22. Subramanian Arvind 2010 New PPP-based Estimates of Renminbi Undervaluation and Policy Implications Policy Brief 10 8 Washington Peterson Institute. The RMB Undervaluation Puzzle An Input-Output Analysis Tang Xiang School of Economics Peking University Abstract The RMB undervaluation puzzle refers to two related facts 1 that the RMB real exchange rate has been depreciating along with China s strong economic growth 2 that most Western researchers agree that the RMB is seriously undervalued in recent years. We propose that this puzzle is mainly caused by an inter-regional race to the bottom in China which reduces average input usage and labor cost thus seriously depressing the general price and wage level through three types of price multiplier effects. We extend the standard input-output model to simulate the price-level effect of racing to the bottom in two key sectors road transportation and coal mining using actual input-output data. The results show that quantitatively our model can fully explain the RMB undervaluation puzzle. The implication is that in order for the RMB real exchange rate to reach and remain at a proper level inter-regional race to the bottom in China must be effectively tackled which entails a radical overhaul of China s economic system and the transition of its development model. Key Words RMB Real Exchange Rate Race to the Bottom Input-output Model JEL Classification F31 L51 D57 120

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untitled The RMB Undervaluation Puzzle: An Input-Output Analysis * 2011 2 26 SSRN Working Paper #1774077 Available at: http://ssrn.com/abstract=1774077 JEL F31 L51 D57 Abstract: The RMB undervaluation puzzle refers