Study On Equilibrium Exchange Rate Of RMB In Recent Years

Exchange-rate movements not only impact the banks, the survival of enterprises, when these changes will affect a country and even a few countries'economic and political stability. Especially in the 20th century, since the 1990s, Currency Crisis which are similar to the Financial Crisis in Asian has a global scale occurred in the fixed-exchange-rate system, the Exchange-rate makes the issue more attention. Along with economic globalization and financial liberalization, the Exchange-rate as the main macroeconomic control measures and economic levers on national economic development by the role has become increasingly evident, most countries use the Exchange-rate as the promotion of international balance of payments, regulate currency circulation and the development of the national economy's main means. It becomes more important majority of people to accept. Therefore, the Exchange-rate and the Exchange-rate related issues become one of the most valuable issues in recent years.In this paper, basing on the developing countries Equilibrium Exchange-rate model (ERER) which be created by Elbadawi and Edwards, under the contemporary macroeconomic situation of China, with selection of economic elements variable for the impact of the RMB Exchange-rate, established the RMB Equilibrium Exchange-rate empirical models (ERER), calculated the RMB Equilibrium Exchange-rate 1985 -2006, as compared with Real Effective Exchange-rate and the Equilibrium RMB Exchange-rate. In the RMB Exchange-rate formation mechanism, how the macro-economic elements affect RMB Equilibrium Exchange-rate. Through empirical research and analysis can be summed up as follows:(1) Economic factors affecting on the level of RMB Equilibrium Exchange-rate including LREERI (Real Effective Exchange Rate Index) and LDRATE (RMB Dep osit Rate), LGOVR (Government Expenditure Ratio), LOPEN (OPEN index), LTOTI (TERM OF TRADE indices), LTIMR ( Import Taxes), LTEXPR (Export Tax Rebate Rate).LDRATE (RMB Deposit Rate), LGOVR (Government Expenditure Ratio), LTOTI (TERM OF TRADE indices) LTIMR ( Import Taxes) and the equilibrium Exchange-rate have positive relations, which LTOTI (TERM OF TRADE indices) is the greatest impact, elastic coefficient is 0.762444809309, thus improving trade situation was the most effective way to adjust RMB Equilibrium Exchange-rate. LOPEN (Open Index) and LTEXPR (Export Tax Rebate Rate) have the negative affecting of Equilibrium Exchange-rate. This paper qualitative analysis of the economic variables, the results are identical.LDM2 (Changes in the Volume of Money Supply) , LGDPR (GDP Growth Ratio), LUSDR (RMB Exchange-rate Nominal Terms) on Equilibrium Exchange-rate is not significantly affected. This practice has long been of control over the capital, with the GDP growing steadily, the RMB Exchange-rate pegged to the dollar Exchange-rate is the actual situation by the.(2) The RMB Exchange-rate imbalance situation analysis can be summarized as, first overestimating: 1985-1986, the respectively overestimation of 33.09%, 2.37%. Second overestimated: 1989, overvalued 4.02%, the main reason is the continuing high rate of inflation lead to Real Effective Exchange-rate of increase by a wide margin, and Equilibrium Exchange-rate remained basically unchanged. Third overestimated :1996-2002, the overestimation of the degree were 3.71%, 9.84%, 13.58%, 5.61%, 4.19%, 7.75%, 4.94%. During this period mainly due to the impact of the Asian Financial Crisis, the depreciation of the Thai strains, Japanese yen, the RMB Real Effective Exchange Rates rose RMB appeared overvalued.First underestimated: 1987-1988, underestimated 4.50%,-15.14%;Second underestimated; 1991-1995, underestimate the extent of more serious, sustained -8.16%, -14.24%, -22.22%, -14.45%, -4.78% .93 -22 reach the lowest point. 22%; Third underest imated: in 2004-2005, slightly underestimated -3.93%, -3.61%. Real Effective Exchange Rate of RMB in 1990, 2003, 2006 RMB Real Effective Exchange Rate and the Equilibrium Exchange-rate is closer to balanced, imbalance rate below 2.5%. This shows that in these years close to macroeconomic internal and external balance, Real Effective Exchange Rate is reasonable.(3) The RMB Exchange-rate mechanism non-market influence on the development of the national economy of force there is an obvious limitations, the RMB Exchange-rate can not truly reflect the supply and demand relationship and therefore can not give full play to adjust the RMB Exchange-rate as a lever in the national economy as a whole. In adjustment of the Equilibrium Exchange-rate process, base on effects of the economic variables to the Exchange-rate, control the export situation, the terms of trade, government consumption and capital inflows, and other aspects of regulation. Give full play to the adjustment of the Exchange-rate, so that achieve the macroeconomic internal and external balance, total supply and total demand balance and stable economic growth, full employment, price stability target.