RCIF Working Paper May.6, 2013
RMB NEER for Third Market Competition:
An Approach Based on Disaggregated Trade Data
XU Qiyuan YANG Panpan LIU Yue
Abstract: While measuring the NEER, three factors should be considered: import competition, direct export competition and the third market competition. The traditional NEER methodology aggregating the export trade data underestimates the competition between producers of homogeneous goods and make the weight of the effective exchange rates too reliant on trade scale. Based on the 6-digit data of HS2002, this paper employs the competitive stress index to adjust the weighting system of the RMB NEER for third market competition. In the new weighting system, European countries and some emerging economies have a higher weights, while the contrary for some of the developed countries including US and Japan, and resources-dominated economies. This research can facilitate the understanding of changes in China’s export competitiveness.
Key Words: Third Market Competition, RMB, NEER, Competitive Stress Index
I. Introduction
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II. Literature Review
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III. Weighting Scheme
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IV. The Selection Procedure of Trade Flow
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V. Sample selection and estimate results
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VI. Limitations and further researches
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