19 February 2008
both are incorrect, The PPP+ model takes into account both relative inflation and relative productivity growth for computation of overvaluation/undervaluation of a currency.
19 February 2008
Rupee Undervaluation can only be done by the central bank (RBI) to achieve gain in GDP. where the rate is not market driven its possible.
19 February 2008
Regardless of the size, if the costs of rupee intervention are present, and there are no benefits, then one should let the rupee appreciate. The presumed benefits of an "undervalued" rupee are higher growth of exports, possibly higher employment, and possibly higher GDP growth.
19 February 2008
The level of reserve in yr 2000 was $41 bn for India and $172 bn for China. One can change the particular estimates, and lower the impact of exchange rate depreciation, but the net result is still the same - keeping the exchange rate undervalued provides huge benefits to the economy, benefits that are more than six times the cost for India, and more than 11 times the cost for China.
These numbers provide some explanation for the "miracle" of east Asian, and especially, Chinese growth. It is apparent that the elephant has a lot to learn from the tiger.
CAclubindia
