Estimating Real Equilibrium Exchange Rate In China: 1994-2005

Along with the rapid increasing of Chinese economic scope and continually enhancing of Chinese economic status in the world, exchange rate has become a crucial economic index which has important influence on economic stability and continuable increasing. Meanwhile, RMB equilibrium exchange rate study has been deeply researched.This paper reviews the development of equilibrium exchange rate theories, and makes comments on current researches in Chapter 1. Using extended PPP model, RMB equilibrium real bilateral exchange rate was estimated by cross-section datum and panel datum in Chapter 2. Based on Elbadawi's equilibrium real exchange rate model in developing countries, RMB equilibrium real effective exchange rate model was established in Chapter 3, misalignment of RMB exchange rate was also estimated. In the last chapter, the exchange rate mechanism was studied and a policy suggestion was brought forward about managing the RMB equilibrium exchange rate target zone by taking the equilibrium exchange rate as the backbone value.This paper is characterized by using the latest research method for equilibrium exchange rate widely used abroad, introducing the panel datum model to analyze the equilibrium exchange rate of RMB. Besides, it studies the expanded PPP model as well as the BEER model and compares the results of empirical researches of both models, presenting a way to compare the research findings in this field both at home and abroad. Last but not least, the sample period of this paper is quite recent, which is from 1994 to July, 2005, a complete phase of China's exchange rate regime. The study of this period plays an important role both in making conclusions of the past history and in pointing out the direction of future development.