Empirical Study On Amended RMB Equilibrium Real Exchange Rate

Equilibrium exchange rate as one of the core issue in the exchange rate theory. Provides a main objective basis for judgment whether the exchange rate level is reasonable and the necessity of the exchange rate policy adjustment. With deepening of china's economic openness, RMB exchange rate have become the focus of economic and polities in global. Nowadays under the pressure of RMB's appreciation expectation, RMB exchange rate policy will be confronted with more and more challenges, the study on the equilibrium exchange rate of RMB will make for the clear under standing of this expectation, and provide some probable solutions for the relaxation of the expectation.Having compared and appraised some advanced equilibrium exchange rate theory and defined the concept of exchange rate, the paper chooses Edwards, Elbadawi and Montiel developing country exchange rate model as theoretic guidance. Based on equilibrium real exchange rate as methodology and using developing countries' empirical experience of equilibrium exchange rate for reference and combining with the condition china, the paper chooses major fundamentals that may be related to equilibrium exchange rate of RMB. selects including trade terms \ net foreign asset \ government expending level \ RMB real exchange rate net foreign interest rate and openness as independable variables, and uses modern econometric tools and co-integration methods such as ADF unit root test, Enger-Granger two steps\ Error Correction Model(ECM)model filter to construct RMB Equilibrium real exchange rate model based on seasonable data from the 1983 to the 2010,and computes RMB equilibrium exchange rate and the degree of misalignment.The degree of RMB exchange rate misalignment is not serious. In a long time, REER experienced different overestimate and underestimate since 1983.From 1986 to 1988 RMB exchange rate was undervalued; From 1994 to 1998 RMB exchange rate was overvalued; From 1990 to 1993 RMB exchange rate was undervalued; From 2003 to 2007 RMB exchange rate was overvalued. But RMB exchange rate was undervalued in 2009.Then, the paper analysis the concrete reasons and the effects on economy of exchange rate misalignment. Finally,make some useful recommendations on improving RMB exchange rate policies.