Reasons, Influences And Correction Of RMB Exchange Rate Misalignment

In the current "dollar-based" international monetary system, the Federal Reserve can easily make dollar depreciate when the need for the devaluation of the dollar. America can avoid a mass of debt by this way and the action bring into some country losing large amounts of foreign exchange reserves. The united states can also expand the margin of intrest between both countries, which will invagrate dollars back and incur a currency crisis in some country. Therefore, it will be a risky practice for our country to adhere the fixed to dollar exchange rate policy. On the 21st July, 2005, the People's Bank of China abandoned the fixed to dollar policy to a basket of currencies system, which strengthened the independence of China's exchange rate system. The exchange rate of RMB's flexibility took the first step.The Renminbi exchange rate system reform needs the balanced exchange rate to provides the instruction, otherwise can causes the exchange rate dislocation phenomenon. The exchange rate dislocation is a phenomenon which the exchange rate trend deviates basic economical essential factors and exchange rate changes unreasonably. The exchange rate dislocation or misalingment brings the negative effect to the stability of macroeconomy and the economical sustainable growth in a country. It can also brings the adverse effect to the distribution of income, the social welfare, the international relations and so on a series of questions simultaneously. The exchange rate misalingment destroys the interior balanc and exterior balanc of macroscopic economy of a country. At present the equilibrium exchange rate theories have based on the purchasing theory equlibrium exchange rate theory, the fundamental equilibrium exchange rate and the behavior equilibrium exchange rate theory.In this paper, the measurements of the unit root test, co-integration test and vector autoregression test of time series are used to form the balanced reer effective exchange rate during 1980 to 2005 with fundamental variables such as labor pruduction rate, extent of open and trade term.Then, we get the extent of the misalignment of the real effective exchange rate by calculating a formula. The result shows that since 1980. The serious underestimate phenomenon of real effective exchange rate exsist in China. Then, using co-integration test and the least squares test, the impact of the misalignment of the real effective exchange rate of China's will be analized. The result of the analysis shows that the underestimation brings the great impetus to the country's economic growth, it has a...