Research On Exchange Rate Target Zone Of Our Country

Exchange rate target zone regime is an intermediate regime which limits exchange rate band to a certain region. Exchange rate target zone is a managed exchange rate regime arrangement; a country limits its exchange rate within a specified region, once the scope of exchange rate fluctuations beyond this region, the monetary authorities will intervene it. With the entry to the WTO, China is more and more important in the world's economy. But it is also important to China that how to choose appropriate exchange rate regime and to carry out the relative policy in open, macroeconomical surroundings.On the basis of analyzing advantages and disadvantages of current RMB exchange rate regime, this paper proposes that RMB exchange rate target zone will combine with stabilizing the exchange rate level and strengthening independent of monetary policy, so it is a feasible exchange rate regime under the economic and open environment. Thus, establishing RMB exchange rate target zones, in the middle and long period, is appropriate for China. After a feasible research on establishing RMB exchange rate target zone, this paper proposed the establishment of the RMB exchange rate target zone design.The RMB exchange rate target zone design, mainly related to the centre of exchange rate target zone and the target zone band. Firstly, on the basis of equilibrium real exchange rate model in developing country—ERER, this paper uses Chinese macro economic data from 1983 to 2005, according to ADF Unit Examination and Engle- Granger Two Foot Works Cointegration Analysis, chooses main economic factors that affect RMB exchange rate, establishes RMB equilibrium exchange rate model and Error Correction Model (ECM), And evaluates the misalignment of RMB equilibrium exchange rate. Secondly, on the settlement of RMB exchange rate target zone band, According to the experience of Western countries and the specific situation of our country, this paper suggests that the band of RMB exchange rate target zone should be±5% in short time. With the marketization of interest and the open of capital items, this band will be widened gradually. In the long time, the band should be 10% to15%.finnallu,this paper propose that the Chinese authorities should take active measures gradually and moreover, and should be backed by consistent and sustainable macroeconomic policies and relevant structural reforms.