The Empirical Research Of The RBM Equilibrium Exchange Rate

Under any arrangement of exchange rate policy, a reasonable rate level plays a very important role in the effective collocation among departments. Studies show that exchange rate misalignment will bring about great welfare costs in open economic systems, no matter with high estimate or low. Therefore, whether the exchange rate of RMB is misalignment,if so, to what degree and whether we need an adjustment are the most important problems our authorities have to give an immediate reply to, and are also the main points in the reform of RMB exchange rate policy. The aim of this paper is to make a prediction and calculation of RMB's the equilibrium real exchange rate and the degree of misalignment in order to respond to the problem : whether to change the rate or not.According to the thoery of behavioral equilibrium exchange rate, I try to creat a pattern of equilibrium real exchange rate of RMB to well suit to our national conditions; a further analysis on the condition and the reason of misalignment is also available; meanwhile,it gives an comment on the current RMB exchange rate policy and offers some advices about the direction of reform.Chapter1 is the introduction part of the whole paper, showing the researching backgroud information , the creational ideas and the structure of the content.Chapter2 gives a clear definition of equilibrium real exchange rate, and analyzes its meaning with the thougt of macroeconomic balance. The equilibrium real exchange rate is the real exchange rate fulfilling the macro internal-and-external equilibrium in the metaphase and long-term. The internal equilibrium means the potential output or plenary employment and continuable lower inflation rate come true. The external equilibrium means the current account and the capital account carry out equilibriums. The relation between economy equilibrium and equilibrium real exchange rate is that the equilibrium exchange rate is the level of real exchange rate carrying out the current account and the capital account equilibriums in the case of the potential output.Chapter3 concludes all the popular relevent content on the pattern of equilibrium exchang rate. It aims to provide theories and methods for the its research. The theories involved in this chapter are mainly the followings: Cassel (PPP), Williamson (FEER,1985), MacDonald (BEER,1998), Stein (NATREX,1994), Edwards and Elbadawi (ERER,1994).Chapter4 uses equilibrium exchang rate pattern to create the pattern of RMB's equilibrium exchange rate. The expression is : LNREER = f ( LNTOT , LNPROD , LNM₂, LNNFA). Where REER is the equilibrium real exchange rate represented by RMB real effective exchange rate,TOT is the condition of the commerce, PROD is the productivity represented by real GDP, M2 is the real currency supply,NFA is the Net foreign assets .On the base of this expression , we also calculate the level of national RMB equilibrium exchange rate: LNREER = 45.61 + 0.38 LNTOT + 2.44 LNPROD - 0.58 LNM2 + 2.87 LNNFA + 0.04 TREND。According to academic analysis, if the condition of the commerce and the ratio of the government payout and theGDP and the Net foreign assets aie improve, the equilibrium real exchange rate will increase; if the real currency supply and the open degree enhance, the equilibrium real exchange rate will decrease.Chapter5 provides us a discovery that since 1980s RMB's equilibrium real exchange rate has gone far away from equilibrium exchange rate in most of the time which is shown in the form of adjustment of RMB's exchange rate . The main findings of the paper are that Renminbi real exchange rate has been misaligned during most of the sample period, particularly, undervaluation occurred in 1990q3—1996q4 period; overvaluation occurred in 1997q1—2003q4; RMB Real Exchange Rate and Equilibrium Exchange Rate are coincident in 2004q1—2006q4. The paper also analyses the economic reasons and policy implications of the findings.Therefore we should set up a system of Crawling Pegs to steady the development of Chinese economy.This is our best choice!...