Empirical Study On Long Real Equilibrium Exchange Rate Of RMB

From July 21th,2005, China has exercised a floating exchange rate system which based on market supply and need, referred to "a basket of currencies" which can be adjusted and managed. The corresponding exchange rate theory and empirical study will be extremely important and anxious.This paper takes the RMB/USD exchange rate from 1995 to 2010 as study objects, studies on RMB actual long-term equilibrium exchange rate. Based on the works previously, I start my study from the macroeconomy structure and GDP development, and then I combine interest-parity, purchasing-power-parity and balance of payment and expenditures theory together, considering all basic factors that may affect the exchange rate.The paper includes 4 Chapters. Chapter 1 introduces the history of the development of exchange rate theory, tells some important theory and reviews the related papers home and abroad, setting the writing line and studying framework at the end. C hapter 2 distinguishes RMB actual exchange rate from nominal rate, rebuilds the exchange rate determination model of developing countries from three aspects of consumption, investment and foreign trade. I further do the comparative static analysis, survey on the short effect of economy factors to exchange rate. In Chapter 3, I do empirical study, deal the data with ADF test to judge clearly the stabilization of the data, we introduce the method of cointegration, weeding out the unmatched factors, and take H-P filter to construct RMB real long-term exchange rate value. At last, I compare real exchange rate, equilibrium exchange rate and long-term equilibrium rate together, and give the reason why they are different. Chapter 4 gives political suggestions based on the former 3 Chapters.I get the conclusion from the paper that the RMB Exchange Rate is determined by interest difference between home and abroad, the foreign trade conditions, the tariff ratio and funds outstanding for foreign exchange. China should further deepen the RMB Exchange Rate reform, adjust the exchange rate flexible according to economy factors, making exchange rate as a powerful tool to promote Chinese economy development, form effective exchange rate determination mechanism to make China develop further.