| Exchange rate is one of the vital price variables in the macroeconomic system, a lever to adjust the balance of national economy, also the most important political tool in the international finance. Real exchange rate is one of the core concepts in the empirical research of financial problems. It is the basis for all researches to the problems that related to exchange rate. Real exchange rate, a nominal exchange rate after adjustment to related price index, is an important index to reflect the international competitiveness of an economic entity. Real exchange rate reflects the basic aspect of the national economy and also balancing the internal and external economic relations to the fast growing China.On January 1st of 1994, a vital reform swept the foreign exchange control system of our country. The official exchange rate and the foreign currency swap market exchange rate were unified. The managed floating exchange rate system based on market supply and demand was implemented. During the same period, China had an average 9.63 percent economy growth in the past thirty years. Internally, the country's economy experienced the circular of inflation--deflation--inflation. Externally, China witnessed the pressure of the deflation of RMB during the SEA crisis, as well as the pressure of appreciation of RMB put by the western countries.The real problem of the argument of the RMB exchange rate policy lies in whether the real exchange rate is well balanced though most of the arguments are focused to the nominal exchange rate. The more economic growth along with open climate, the more important adjusting function role the real exchange rate plays. With the establishment of the theoretical framework for exchange rate and a proper perspective in the special exchange rate system, the real exchange rate for RMB can be determined and evaluated. This article describes an integrated analysis framework for the real exchange rate, taking into consideration the economic growth and opening up. The first chapter is the preface and the following chapter tells the readers the definition, different sorts and evaluation of the real exchange rate, the basis for the research. The following three chapters consist of the long-term trend, mid-term definition and the adjusting role that the real exchange rate played in the trade balance. These three chapters are the main parts of the research. The last chapter Raised policy proposals after study the effectiveness of policy combination of the macro-economy policies by using the widened Mundell-Flemming Model.The abstract for every chapter is shorted as below:The first chapter is composed of the significance of the thesis, the documents within china and abroad, contents researched, researching method, the merits and deficits of the paper, the core problem, etc.The second chapter begins with the description of the history for the exchange rate of RMB; it described the concept of real exchange rate, categories, as well as the calculations. It calculated the real effective exchange rate of RMB from Q1'94 to Q2'05, as well as analyzed the calculation result based on the price index and the strcture of region, based on the assumption of select 16 countries as main business partners including US, Canada, Australia, Germany, France, UK, Italy, Holland, Russia, Japan, Hong Kong, Korea, Taiwan, Malaysia, Indonesia, and Singapore.The third chapter introduced the theory and the development of the Balassa-Samuelson Hypothesis ("BSH"below). It established the quarterly data of the tradable sector and nonetradable sector between China and US. From the analysis of BSH effectiveness of domestic and international mechanism of the RMB real exchange rate, it concluded the existing of China version of BSH, and the relative labor productivity growth of tradable/nontradable sector in China explained the moving of internal real exchange rate. Using USA as the benchmark country,it measures two-countries relative Labor Productivity of tradable/ nontradable sector and real exchange rate in the period.The evidence has been found to support the linkage between two-countries productivity differences and RMB real exchange rate during the period.Balassa-Samuelson Effect is significant in China.The fourth chapter introduced the development of the theory of equilibrium exchange rate and the model of Behavioral Equilibrium Exchange Rate("BEER"below), introduced five fundamentals economical factors ,the term of trade ("TOT"below),net foreign asset ("NFA"below), monetary aggregates("M2"below), the productivity("Prod"below) , openness("Open"below).Worked out the RMB BEER and the misalignment of real exchange rate based on the data from Q1'94 to Q2'05 by using BEER model. Concluded that Prod, TOT, M2, NFA, and Open are the long term key criteria to decide the RMB BEER.The fifth chapter introduced the development of the elasticity approach to balance of payments. Studied how the RMB real exchange rate impacts to the general China trade balance by using the total elasticity analysis method, and concluded that the Marshall-Lerner Condition is obvious true in China. Studied the elasticity bilateral analysis of China vs US, China vs UK, China vs Japan, China vs France, China vs Germany, China vs Italy, China vs Canada, and concluded the existing of the im-parallel of RMB real exchange rate among the different trading partner. This im-parallel depends on both difference of elasticity of income and the relative price of RMB between countries.The sixth chapter introduced the history how Japan and Germany got their currency stronger under the pressure of currency appreciation during their economy growth. It studied the decision of Bilateral External Real Exchange Rate of RMB/USD during 1994-2005, and the effectiveness of the monetary policy and exchange rate policy during the period. Also analyzed the path of RMB real exchange rate rising after the July 21, 2005. Raised policy proposals after study the effectiveness of policy combination of the macro-economy policies by using the widened Mundell-Flemming Model.
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