| Since our country carried out the exchange rate system reform,the exchange rate of RMB is becoming the focus issue of the world economy.In December 2001 after China's accession to the WTO,the major trading countries put pressures on the RMB, strongly demanded its appreciation,Since 2003,the U.S.dollar against the major currencies of West world continued to be depreciated,which caused the corresponding devaluation of the RMB,and RMB is facing more stress and more speculative expectations.On July 21,2005,the exchange rate system reform of china attracted the whole world's attention.Now the exchange rate system is floating one which based on market supply and demand with reference to a basket of currencies and being managed.This paper is divided into four parts.The first part describes the historical development of the RMB exchange rate,elaborates some important factors which impact on the exchange rate system drawing up.The second part is the theoretical basis of this paper.Mainly introduces the development and application of the purchasing power parity theory,there are also some scholars empirical tests about it.The third part is empirical research part which also is the most important part of this paper,mainly use the non-linear STAR model to adjust the real exchange rate of RMB. The last part is the concluding part of this paper. Summarize the conclusions by empirical research and put forward some policy recommendations.Purchasing power parity theory is an important exchange rates decision theory, which is widely used in the analysis of exchange rates,many economists and the governments use is to calculate the equilibrium exchange rate of,and also it was a measure to regulate the currency of a country's current real exchange rate.It is based on the theory of the law of one price,the main form of it are the relative purchasing power parity theory and the absolute purchasing power parity theory.Absolute purchasing power parity theory says that a currency's external value is in accordance with the national currency's purchasing power at the local market and the foreign currency's purchasing power on foreign markets, that is, the exchange rate between the two countries'currency depends on the relative purchasing power of currency.Relative purchasing power parity theory holds that at a certain period of time,changes in exchange rates are in proportion with the changes in price levels between the two countries at the same period.However,Kassel who proposed the theory of purchasing power parity has always recognized the limitations of this theory as following:(1)Trade restrictions will be stricter in a certain direction than the other direction (for example,one country's trade restrictions on imports will be stricter than on its exports)which will make the exchange rate higher than the PPP.(2)Speculation on the foreign exchange market will be detrimental to a country's currency,which will bring the country's foreign exchange currency exchange rate lower than the purchasing power parity.(3) The expectation on a country's inflation will be higher than the expectation on the foreign inflation; this would make the currency exchange rate lower than the purchasing power parity.(4)A country's internal relative price changes are actually a reflection of economic changes since the base period and not simply a reflection of changes in monetary quantity and this implied the relative purchasing power parity has the deviation with the real exchange rate.(5) Long-term capital flows will make the exchange rate deviate from the purchasing power parity,for example, the net outflow of long-term capital will make one country's currency exchange rate lower than the purchasing power parity.(6) Government has the capacity to intervene in the foreign exchange market, for example,by increasing the demand for a foreign exchange,would make the currency exchange rate higher than the purchasing power parity.Opposite can also make a currency exchange rate lower than the purchasing power parity.Therefore,the neoteric scholars make a series development of the original purchasing power parity theory.Including:purchasing power parity theory takes account of non-trade goods on the impact of exchange rate, PPP theory considers the transaction costs on the impact of exchange rate,Balassa and Samuelson on the development of the theory of purchasing power parity,the monetarists make the development of the theory of purchasing power parity,the efficient market of purchasing power parity theory and so on.The theory of purchasing power parity is developed with the econometric model's development; it has experienced the following six stages:the experience of the early testing phase,phase of unit root test, co integration study stage, long-term and inter-temporal stage,panel data study stage and the stage of the nonlinear time series model now.Experience test is a simple test with regression analysis on the purchasing power parity of the two variables and the three variable models,used to test domestic and foreign price indices with the exchange rate in line with purchasing power parity.Unit root test is testing whether the real exchange rate subject to random walk,that is,testing whether the real exchange rate has a unit root.If the real exchange rate smooth,it supports long-term purchasing power parity.If the real exchange rate subject to unit roots process,it will not be converged on the long-run equilibrium level.Co integration test is mainly commence from the nominal exchange rate and the relative prices between the two countries, whether the nominal exchange rate and the price difference between the two countries have a co integration relationship,if there is,it implies that the real exchange rate is a steady sequence.long-term and inter-temporal stage is in order to overcome the low-power problems that the smaller time span time series in the unit root tests,but there are still some problems, for example, if data is a very long period, they will be related to the different types of exchange rate system. At the same time, the real impact of the external on the real exchange rate may also result in a structural break or the equilibrium exchange rate levels changed. Panel data unit root test can also overcome the problem of low-power,because of increased observations,panel data can increase the sampling accuracy of estimates, for the fixed effects regression model,parameters can be estimated to the consistent estimator,or even an effective estimator.Nonlinear time series model is considered the real exchange rate the non-linear characteristics of mean-reversion,the majority of studies have shown that the real exchange rate deviate from the greater degree of purchasing power parity,its reply to the purchasing power parity faste.China's RMB exchange rate is mainly affected by changes in the purchasing power level,the level of foreign exchange supply and demand and the international balance of payments, export exchange costs, economic development strategies, the exchange rate management system and government intervention in the market and so on.From existing research,the RMB exchange rate in purchasing power parity rarely be support in empirical,because since the reform and opening, the RMB exchange rate system has experienced several changes, the continuity of data is very poor, and also the weights of goods that China and the United States price index contains are not the same.In this paper, by constructing the real exchange rate of RMB non-linear LSTAR model,analyze the dynamics adjustment process of the real exchange rate of RMB, draw on that in the long term the real exchange rate of RMB is close to the purchasing power parity,but in the short term it has the nonlinear mean-reversion characteristics.by analyzing the results,make recommendations as follows:the RMB exchange rate is at the government's strict control now,it isn't market-oriented,the Government should relax the controls on the exchange rate,opening the RMB exchange rate program,make the RMB exchange rate to the right track,in order to make sure it can be able to reflect the correct operation of the economy. |
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