Mean Reversion Behavior Of The RMB Exchange Rate

Using the variance ratio and the regression test withmonthly data from 1985 to 2006 and weekly data from1994 to 2006, the paper examines whether there exist arandom walk component and a transitory component inRMB exchange rates. The test results have shown thatboth the RMB nominal and real exchange rates exhibit arandom walk component and a transitory component, andthereby indicating mean-reverting behavior. Possibleeconomic interpretations are provided.