Rmb Exchange Rate Analysis

Since the disintegration of Bretton Woods System, tremendous changes have taken place in the field of international finance. The most typical one is the extremely large and abnormally frequent fluctuation of exchange rates, which has made global economic relationships in disorder and international trade, finance and investment faced with risks and uncertainties. Exchange rates relate not only to the survival of banks or enterprises, but also to the political and economic stability of nations, especially when change of exchange rates goes out of control. For instance, in the end of 1997 the breakout of Financial Crisis almost destructed some South Asian countries. Therefore, the frequent change of exchange rates has attracted attention from governments, financial departments, enterprises and researchers.There are many famous theories on exchange rate determination. In the 2nd chapter the author makes a summary of these theories, and details her tentative revision on the exchange rate determination equation of Profit Maximization Theory. With the development and application of Econometrics, analyzing methods for exchange rate determination can be categorized into two types. One is theoretical deduction. It means that theoretical equation(s) is (are) deduced before real data are processed to check applicability of the theory. The other is econometric co-integration. It means that independent variables highly correlated with dependent variable(s) are picked out before the method of co-integration is applied to determine the quantitative relation between the independent and dependent variables. Accordingly, the author selects Purchase Power Parity Theory and Equilibrium Theory respectively from each type to analyze RMB's exchange rate.Under different restrictive conditions the equation of Relative Purchase Power Parity develops into three equations, before 1978-2003 yearly data of the RMB/USD exchange rate, China's CPI and US CPI are processed. It turns out that the bi-variable and tri-variable equations are applicable to the RMB/USD exchange rate, while the uni-variable equation is not. But by the method of co-integration, the coefficient of US CPI in the tri-variable equation is positive, which is not consistent with common economic sense.In the empirical research of Equilibrium Exchange Rate Theory, five independentvariables correlated with the fluctuation of exchange rate are picked out, including gross domestic products, M2, openness, foreign reserves and net exports. With yearly data of 1990-2002 processed, the econometric method of co-integration is applied to find the quantitative relation between the dependent variable, RMB's real effective exchange rate, and the five independent variables mentioned above. It turns out that RMB's exchange rate experienced obvious overvaluation during 1990 and 1997-1998, obvious devaluation during 1992-1994, and nearly equilibrium exchange rate during 1991, 1995-1996 and 1999-2002.A summary of the thesis is made, and opinions on the issue of RMB appreciation are stated in the last chapter of the thesis.Xu Yue (International Trade) Directed by Pan Guoling...