Empirical Analysis Of The Equilibrium Exchange Rate

The paper calculates the Real Effective Exchange Rate (REER) of RMB from 1978 according to the method that IMF recommends. These data have enriched RMB's REER data since the reform and opening- up of our country and been favorable to the research of the economic academia.Then we use the cointegration theory to cointegration and ECM model-building for RMB's REER by choosing four macroeconomic indices affecting on REER of RMB. We can conclude that these indices affect RMB's REER to certain degree in the short run and long run.By the impulse response analysis, we can get the response of REER to Cholesky one S.D. innovations of each variable and demonstrate how the change of any variable influences all other variables through the model.We gain equilibrium level of RMB through H-P filter to smooth. Accordingly, we can see the state of RMB exchange rate misalignment from reform and open of China. Since 1999, the REER level is approximately consistent with the equilibrium exchange rate of RMB. Thereby, in the face of complex international and domestic circumstance at present, we conclude that keeping the stabilization of exchange rate of RMB would be still the optimal choice.Finally, the paper appraises on the current RMB exchange rate mechanism and puts forward some suggestion.