An Empirical Analysis Of RMB Equilibrium Exchange Rate From 1980 To 2006

This article profits from the western behavior equilibrium exchange rate theory, according to China's actual situations and the data available, selects three basic economic factors including relative labor productive rate on behalf of the supply factor, actual money supply level on behalf of the damand factor and openness on behalf of the commercial factor, which are related to RMB equilibrium exchange rate, uses modern econometric tools and cointegration methods such as ADF unit root test, Johansen maximum likelihood, ECM model, and Hodrick-Prescott filter to construct RMB equilibrium exchange rate model based on annual data from 1980 to 2006, and computes RMB equilibrium exchange rate and the degree of misalignment . The result of computation indicates that in the 1980s RMB exchange rate is relatively often overvalued, and since 1990s RMB exchange rate is undervalued all the time, what's more, in the recent years the degree of underestimation unceasingly intensifies. Then, the paper analyzes the concrete reasons of exchange rate misalignment and the harm of long-run undervaluation. Finally, the paper points out the best means of reducing underestimation is to reform present exchange rate regime, increase the role of market to explore equilibrium exchange rate and release RMB appreciation pressure.