TY  - CHAP
AB  - Purpose The aim of this study is to examine whether China’s exchange rate follows an equilibrium process and consequently to answer the question of whether or not China’s international competitiveness fluctuates in consistency with equilibrium.Design/methodology/approach The theoretical background of the paper relies on the Purchasing Power Parity (PPP) hypothesis, while the econometric methodology is mainly based on a nonlinear two-regime Threshold Autoregressive (TAR) unit root test.Findings The main finding is that China’s price competitiveness was not constantly following a disequilibrium process. The two-regime threshold model shows that PPP equilibrium was confirmed in periods of relatively high – compared to the estimated threshold – rate of real yuan appreciation. Moreover, it is implied that the fixed exchange rate regime cannot ensure external balance since it can neither establish equilibrium in the foreign exchange market, nor confirm that China’s international competitiveness adjustment follows an equilibrium process.Practical implications The results do not imply that China acts as a currency manipulator. However, a main policy implication of the paper is that China should continue appreciating the yuan to establish external balance.Originality/value This paper is the first which accounts for a nonlinear two-regime process toward a threshold, which is defined to be the rate of change in China’s international competitiveness. Consequently, the paper draws attention to the role of China’s international competiveness in accepting the PPP hypothesis.
VL  - 23
SN  - 978-1-78350-756-6, 978-1-78350-755-9/1571-0386
DO  - 10.1108/S1571-038620140000023006
UR  - https://doi.org/10.1108/S1571-038620140000023006
AU  - Giannellis Nikolaos
AU  - Kouretas Georgios P.
PY  - 2014
Y1  - 2014/01/01
TI  - Does China’s International Competitiveness Fluctuate in Consistency with PPP Equilibrium?
T2  - Macroeconomic Analysis and International Finance
T3  - International Symposia in Economic Theory and Econometrics
PB  - Emerald Group Publishing Limited
SP  - 153
EP  - 183
Y2  - 2024/05/04
ER  -