The Study On Real Equilibrium Exchange Rate Of RMB

The study on equilibrium exchange rate (EER) began in 19th century. The development of EER theories has experienced two stages: the classic and the modern. The thought of the classic, which includes the purchasing power parity theory (PPP), the interest rate parity theory, the overshooting model of exchange rate, etc., argues that the EER is the level that macro-economy is in desired condition. The modern EER theory, which began in 1980s, is the exchange rate level that enables the simultaneous equilibrium of internal equilibrium (the equilibrium of both the commodity market and the labor market) and external equilibrium (a sustainable current account). It mainly includes fundamental equilibrium exchange rate (FEER), behavioral equilibrium exchange rate (BEER) and natural equilibrium exchange rate (NATREX).EER is the main research object of this article, which will use FEER, BEER, and the permanent equilibrium exchange rate (PEER) of modern equilibrium theories to carry on a research into the fluctuations of exchange rate of RMB from 1999 to 2001. The research concludes that the EER of RMB has approximately kept stable since 2001, though it has a tendency to depreciate. On one hand, FEER of RMB has a tendency to appreciate since 2003. On the other hand, the result of the BEER the exchange rate of RMB misaligned seriously from 2001 to 2002. However, the PEER result of RMB appears more stable than the one of BEER, and more "permanent".According to the recent debates of exchange rate of RMB, with the results computed in the EER model, this article concludes: the exchange rate of RMB should keep stable on the long run path and avoid any significant degree of change. The inertia of movement of real exchange rate will urge itself to continue appreciating slightly in the future. And it will not obviously affect macro-economy of our country.