From The Equilibrium Exchange Rate Point Of View Of The Rmb Exchange Rate Regime Choice

Since the second half of the year 2002, the exchange rate of RMB has been the popular topic among economists. In these days, whether revaluate or devaluate the RMB's exchange rate are all means two sides to the China's government. And we can see the China's economy has stepped into the fastest developing phase. It is inevitable for the big economy to revaluate the currency. But now the most important issue are how the RMB's exchange rate revaluate and how much it would be, after the revaluation what the RMB'exchange rate regime will be. At the June 21^st,2005,the RMB' s exchange rate suddenly revaluated about 2% and the China's exchange rate regime has changed to pegging a composite currency not as before. And the central bank also promised the RMB's exchange rates would not peg to only one kind of currency. The RMB's exchange rate would be adjusted according to a basket of currencies.This essay will firstly reintroduces the basic conceptions of exchange rate and exchange rate regime, considering the documents on the topic for understanding the adjustment of the China's exchange rate regime better, finding the importance of the equilibrium exchange rate to the exchange rate regime. Then the paper concludes the equilibrium exchange rate is the key for one country to choose its exchange rate regime. There are two basic problems for the China's exchange rate regime reformers to consider: the first, to decide the equilibrium exchange rate; the second, to decide the methods of adjusting the exchange rate from time to time.For better elaborating the point, this essay measures and calculates the equilibrium exchange rate in China by using the basic econometrics method. With the Granger Causality Test first, we will choose the variables that enter the equation. And by using the Johansen likelihood ratio method we will test the cointegration between the variables. Then this essay concluded the cointegration equation between the real exchange rate and the TOT (the openness of the China's trade), the money2, the GDP, the difference between the change of the China's CPI and the change of the United States'CPI. Furthermore, the essay analyzes the equilibrium exchange rate's...