Preliminary Study On Exchange Rate Target Zone Of RMB

Fixed exchange rate system is no longer suitable for China's current economic situation.China's current economic development level and the financial system has not yet reached the requirements of the floating exchange rate system. We can not help looking to the middle exchange rate. RMB exchange rate target zone as a medium-term option is a kind of desired selection.At first, this paper has a literature review about the exchange rate target zone and the RMB exchange rate target zone.It mentions about Williamson's exchange rate target zone program and Krugman's exchange rate target zone model.What's more, this paper reviews some basic knowledge about the theory of exchange rate target zone. It mentions exchange rate target zone's meaning and classification, advantages and disadvantages, the need to establish RMB exchange rate target zone and so on.And then, design the RMB exchange rate target zone, mainly related to the equilibrium exchange rate and the target zone band. Firstly, on the basis of equilibrium real exchange rate model in developing country—ERER, this paper uses Chinese macro-economic data from 1985 to 2009, according to ADF Unit Examination and Engle- Granger Two Foot Works Cointegration Analysis, chooses main economic factors that affect RMB exchange rate, establishes RMB equilibrium exchange rate model and Error Correction Model (ECM), And evaluates the misalignment of RMB equilibrium exchange rate. Secondly, on the settlement of RMB exchange rate target zone band, According to the experience of Western countries and the specific situation of our country, this paper suggests that the band of RMB exchange rate target zone should be 10%(±5%) in short time.Finally, this paper gives some policy recommendations.