| Having compared and analyzed western equilibrium exchange rate theories, the paper chooses Edwards's and Elbadawi's developing country models as theoretic guidance, and selects basic economic factors related to RMB equilibrium exchange rate, uses modern econometric tools and methods such as Johansen maximum likelihood, VEC model, H-P filter to construct RMB equilibrium exchange rate model, and compute RMB equilibrium exchange rate. The variables in the model include openness, actual money supply level, and relative labor productive rate. The computation shows that in the 1980s RMB exchange rate is relatively often overvalued, and since 1990s RMB exchange rate is undervalued all the time. Then, the paper analyzes the harm of RMB exchange rate misalignment, the reason of long-run undervaluation, and sustainability. The conclusion is that Exchange rate misalignment will do harm to the inner and outer equilibrium of an economy, and will threaten the stability and sustainable growth of economy. The reason of long-run undervaluation is that there is a conflict between the two exchange rate policy objectives: maintain the inner and outer equilibrium of an economy and maintain export competitiveness, that is, under the export-driving and FDI-driving economic development strategy government will lay emphasis on maintaining export competitiveness and sacrifice the inner and outer equilibrium of an economy to some extent. Exchange rate policy must comply with economic law—long-run undervaluation is unsustainable and RMB exchange rate needs appreciation in the long run. Finally, the paper discusses how to appreciate the RMB exchange rate under new exchange rate regime and the institutional conditions demanded, pointing out that the forms of appreciation is diversified under new exchange rate regime, gradual appreciation can be realized, and perfecting exchange rate mechanism and increasing the role of market are needed to reflect the trend of equilibrium exchange rate. |
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