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To use such norms to determine an equilibrium real exchange rate, it is implicitly assumed that the norm itself is not a function of the real exchange rate, which is a questionable assumption, particularly as the openness of the economy increases.
The change in the exchange rate required to bring the underlying current account balance in line with its norm is inversely related to the size of the price elasticities in the trade model. Hence, the smaller the price elasticity, the larger the change in the exchange rate required.
Coudert and Couharde (2005) do not find a significant Balassa-Samuelson effect in an equation estimated only for China. Wang’s finding of a significant effect may reflect the additional explanatory variables included in her equation and/or the differences in the data used and the time period over which the equations were estimated.