An Empirical Study On Equilibrium Real Effective Exchange Rate Of RMB

Since Asia financial crises in 1997 which surprised the over world, RMB has been paid close attention to. Six years after that, RMB again attracts the attention of the world. There still exist disputes whether RMB will go appreciating, depreciating or remain stable. Western governments execute great pressure on our government about the exchange rate. With the further opening of our country, our government places emphasis on how to maintain both outer and inner economic equilibrium in terms of exchange rate policy effectively. Therefore, it is of great significance that we construct a exchange rate model to appraise the rationality of current exchange rate, instruct current exchange rate policy and perform the function of it in the national economy.There are three problems as to real equilibrium exchange rate. The first is definition and measurement of real exchange rate. And the second is the decision of real equilibrium exchange rate. The third is how to reconstruct the exchange rate system if it exists the misalignment of real exchange rate and real equilibrium exchange rate. According to such logic, the structure of this paper is arranged as follows:Chapter I is part of introduction which introduces the classification and measurement of real exchange rate. In this chapter, a description is given on the definition and characteristic of equilibrium exchange rate. It is pointed out that the misalignment of equilibrium exchange rate is the result of disequilibrium between outer and inner economy.Chapter II describes the development of contemporary equilibrium exchange rate theories. We introduce the theories of developed and developing countries and study of domestic researchers on the RMB equilibrium exchange rate using the theories discussed above.Chapter III is the empirical study on RMB real exchange rate. We first construct a equilibrium real effective exchange rate model and give a appraisal and forecast of RMB exchange rate. The paper argues that there have been three overestimation and two underestimation since 1980. The paper also maintains that current RMB exchange rate is in status of underestimation and it is faced with pressure of appreciation.Chapter IV gives the improving suggestion based on the discussion of the decision mechanism of RMB exchange rate and its discrepancy. Further more, we give our own views on current RMB underestimation. We point out that the trend of RMB appreciating is the result of structure disequilibrium and system inflexibility, that the cumulated systematic financial risks and possible rushes make it possible for RMB depreciating in the future, that the basic way is to adjust the developing strategy and reform the system.