Based On The Research The Beer Model Of Rmb Equilibrium Exchange Rate,

With China's rising international status and its sustained and rapid economic development, China's foreign exchange reserves surged and the trade surplus increased significantly. RMB revaluation pressure since 2002 still exists. This article aims to answer two questions: whether RMB exchange rate is overvalued or undervalued and the degree of the possible exchange rate misalignment based on previous studies on China's RMB Equilibrium Exchange Rate.Firstly, by reviewing the four periods of China's exchange rate policies and exchange rate fluctuations since 1949, clarified the historical evolution of the current RMB exchange rate and the cause of the pressure of revaluation of RMB.Secondly, starting from the concept of Equilibrium Exchange Rate, this article reviewed several major current Equilibrium Exchange Rate theories and models. Combined with characteristics of models and China's national conditions, after choosing Behavioral Equilibrium Exchange Rate (BEER) model, using monthly data January, 1997- July, 2010, built co-integration analysis and regression equation on a set of economic variables that influence RMB exchange rate, and ultimately determined three variables: openness(OPEN), capital flows (FLOW) and monetary policy pressures(D_M), and the impact of each variable on the direction and extent of RMB exchange rate. Increasing pressure on monetary policy leads to the real effective exchange rate appreciation, while increasing capital flows and enhancing the openness leads to depreciation.By calculating RMB exchange rate misalignment, found out that in December 2001, February 2002 and May 2008 -2009, RMB was overvalued, in the rest of the time intervals, RMB appears underestimated.Finally, on the basis of empirical research, gave policy recommendations to improve the RMB exchange rate misalignment.