Research On RMB Equilibrium Real Exchange Rate And Corresponding Open Macro-economic Effects Of Real Exchange Rate Misalignment

In recent years,china’s macroeconomic grows steadily and rapidly and plays a decisive role in the global economy.However,on the one hand,china’s domestic economy confront the problem of lack of consumption while surplus investment as a whole,the current account and capital account are maintaining a double surplus,so both internal and external macroeconomics exist imbalances;on the other hand,the US-led western developed group put pressure on RMB exchange rate continuously,claiming that our country is a "currency manipulator" and there is a serious underestimation of RMB real exchange rate.Domestic and outside macroeconomic situation requires us to forwardly take some measure to solve the economic imbalances and exchange rate disputes.How to achive our domestic and international economic equilibrium and the gole of real exchange rate right valued? As an core variable of open macroeconomics,Real exchange rate is the bridge which connect domestic and outside economics.In addition,the equilibrium real exchange rate is the indicators and standards which reflects both a balance of countries’ macroeconomics and rationality of currency exchange rate.Thus,this paper try to analyze and answer these questions through making equilibrium real exchange rate as a starting pointEquilibrium real exchange rate refers to the real exchange rate with internal and external macroeconomic equilibrium, which is determined by the domestic and outside basic macroeconomic variables (parity property),but also is corresponding to those economic factors(leverage property).Therefore,through researching on equilibrium real exchange rate, we need measure the equilibrium real exchange rate and evaluate the reasonableness of the level of the real exchange rate, as while as analyze the impact of real exchange rate misalignment on domestic and outside macroeconomic main factors.Only in this way,can we find a road to achieve both open maroeconomic balance and exchange rate soundly.so our research play theoretical and practical significance in making sound maroeconomic polices and appropriate exchange rate polices.Firstly,we empirically estimate the equilibrium real exchange rate of RMB and assess the current RMB exchange rate.Based on previous research and combining BEER and ERER model, we take Hsiao procedure in selecting optimal explanatory variables and use structural break cointegration analysis to get long-term equilibrium relationship between exchange and fundamentals, then estimate equilibrium real exchange rate trajectory with HP technic,take into account the2005exchange reform. The research shows that:RMB real exchange rate has experienced4times undervalued and3times overvalued during the sample period.Concretely,the overestimation is short and little,an average of less than1%level;while1994-1997、2003-2007are two long time and significant underestimation, especially the underestimation level is over5%averagely.After the estimation of equilibrium and misalignment, we futher empirical analyze the impact of those misalignment on domestical and outside macroeconomics:(1)impact on the domestic price levels. The pass-through of real misalignment on domestic three price indexs such as CPI、PPI and RPI is definitely perfect, PPI maximum elasticity-0.309,greatest impact on CPI is-0.028.Real exchange rate misalignment in general can cause instability in domestic price level,bringing uncertainty to inflation-target monetary policy;(2)misalignment impact on economic growth and employment.overall, the real misalignment has a nagatie effects on economics and employment.specifically,in short-term,1%RM undervalued will increase the real GDP growth by0.289%.in long-term underestimation is not conductive to long-term sustainable economic growth and industrial structure optimization; real misalignment has also lagged negative effect on employment:1%real underestimation,5.6%of employment rate growth;(3)real misalignment impact on international balance of payments.the underestimation is positive correlated with net exports(current account), concretely,1%of real exchange rare undervalued,the exports increased by1.967%while imports decreased by0.153%.for capital projects which is represented by FDI,the real exchange rate misalignment on FDI is inverse correlation.1%underestimation of real exchange will make FDI increase by4.24%.so the real undervalued is conductive to attract foreign capital investment,which is due to Chinese continuing rapid growth as while as the expectation of RMB appreciation.Finally,the authors also make a qualitative analysis to the rising of real misalignment, and propose corresponding macroeconomic and exchange rate polices or system in order to achieve both open-macroeconomic balance and exchange rate stability.choice of one country exchange rate system、exertion of macro adjustment and control policy、confirmity of trade and capital policy all will cause the misalignment.we need combine a series of polices tools to achive our goal:self-repair mechanism of real exchange rate、fiscal and monetary policy consistent to exchange rate policy,with the complemented appropriate exchange rate policy.