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<P align=left><FONT size=3 face="Times New Roman">Abstract: Based on the theory of equilibrium real exchange rate, this paper estimates the behavioral </FONT><FONT size=3 face="Times New Roman">equilibrium exchange rate and the resulting misalignment in China. Evidence shows chronic </FONT><FONT size=3 face="Times New Roman">overvaluation in China’s central planning period, but economic reforms have brought the </FONT><FONT size=3 face="Times New Roman">real exchange rate closer to equilibrium. The cumulative effect of exchange rate reform led </FONT><FONT size=3 face="Times New Roman">to a substantial real depreciation of the Chinese currency after 1981. Indications are that </FONT><FONT size=3 face="Times New Roman">China now has a proactive exchange rate policy with the nominal exchange rate used as a </FONT></FONT><FONT size=3><FONT face="Times New Roman">policy tool to attain real targets. </FONT></FONT></P>
<P align=left><FONT size=3><I><FONT face="Times New Roman">J. Comp. Econ.</FONT></I><FONT face="Times New Roman">, March 2001, <B>29</B></FONT><FONT face="Times New Roman">(1), pp. 80–94. St. Antony’s </FONT></FONT><FONT size=3><FONT face="Times New Roman">College, Oxford University, Oxford OX2 6JF, England. </FONT><FONT face="Times New Roman">C° 2001 Academic Press</P></FONT></FONT><I><FONT face="Times New Roman">
<P align=left><FONT size=3>Journal of Economic Literature </FONT></I></FONT><FONT size=1 face="Times New Roman"><FONT size=3>Classification Numbers: C13, C32, F31, P21, P33.</FONT></P></FONT>[Money=1][/Money]