The Statistical Research On The Reasonable Interval Of The RMB Exchange Rate Fluctuation

Export, one of the three carriages in pulling China’s economic growing, is promoting the economic growth. At the same time, export makes our trade surplus become the norm, with foreign exchange reserves surging and imbalance of international payments intensifying. In recent years, despite the trade surplus and foreign exchange reserves decreased, the expectations of RMB appreciation has not diminished and the voice to revalue our currency continue. The RMB exchange rate mechanism reform on July21,2005, and from that date, China began to implement the market-based, reference "a basket of currencies" and managed floating exchange rate system. The RMB exchange rate is no longer a single peg to the U.S. dollar, begins to reference a basket of currencies and plays the basic role of market in resources allocation. The flexibility of exchange rate fluctuation increases and the volatility further increases. The previous day before the exchange rate reform, the central parity rate of RMB against the U.S. dollar is one U.S. dollar to8.2765yuan. However, with the arrival of the sixth anniversary of the exchange rate reform, the central parity rate is one U.S. dollar to6.4536yuan, which creates a new high. After six years of the exchange rate reform, the RMB against the U.S. dollar exchange rate has cumulative appreciated by22.025%, but the exchange rate is still faced with huge appreciation pressures. So, the reasonable exchange rate level should be what kind of?At the same time, along with the RMB exchange rate continuously and steadily appreciating, the trend of appreciation of the RMB exchange rate has been expected, and this leads to a lot of hot money inflows in China, largely resulting in our foreign exchange reserves surging. In the foreign exchange market, the central bank gains the foreign exchange reserves through the purchase of the exchange rate. The process of central bank increasing foreign exchange reserves is actually the process of release of the base money. Foreign exchange reserve grows so excessive and largely that, to a large extent, it results in excessive liquidity and inflationary pressures. In the journal of China’s foreign exchange, Yi Gang said that the flexibility of the RMB exchange rate will further increases in order to reduce the trade surplus and domestic inflation pressure on January11,2011. This is also the latest formulation of the highest-level officials of the Administration of Foreign Exchange to prevent the problem of inflation by increasing exchange rate flexibility. Then, what kind of exchange rate fluctuation interval is reasonable?At present, it has come to a consensus that we should continue to promote the reform of the formation mechanism of the RMB exchange rate, fully play the basic role of market in allocating resources, further expand the flexibility of the RMB exchange rate fluctuation, reduce the trade surplus, promote the balance of international payments and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level. The RMB exchange rate formation mechanism further with the market, inevitably making the frequency of fluctuation in exchange rates further accelerate and volatility further increase. For this, we need to know the reasonable fluctuation interval of the RMB exchange rate as a judgment on whether the exchange rate is disordered or whether it is necessary to make the exchange rate to return to its long-run equilibrium level through intervening in the foreign exchange market.From the domestic and overseas scholars’relevant research, we note an ignored problem——the reasonable interval of exchange rate fluctuation. Although Krugman’s Exchange Rate Target Zone theory has discussed the problem, but it still stayed in the level of theoretical analysis and did not exactly propose solutions on how to determine the upper and lower limits. The intervention of the exchange rate is in essence a kind of government intervention through involving in the foreign exchange market, which should be carried out when market failure occurs. In the process of exchange rate fluctuation, there is a balanced and stable mechanism, which can ultimately make exchange rate converge to the equilibrium path in a certain interval of the fluctuation. So, within the interval of fluctuation, the exchange rate is reasonable and the Government has no need for intervention. Therefore, based on the balanced and stable mechanism, we believe that the exchange rate regulated benchmark is not a point but an interval and the government intervention is necessary only if the exchange rate beyond this interval.From the theoretical analysis point of view, this article summaries the exchange rate theory firstly, which lays the foundation for the choice of the RMB exchange rate theory. Then, we analyze the mechanism of exchange rate fluctuation, which includes the impact of exchange rate fluctuation to economic, the balanced and stable mechanism of exchange rate and the method for calculating the reasonable interval of exchange rate fluctuation. We also clarify the impact of exchange rate fluctuation on trade manufacturers and consumers, what kind of exchange rate fluctuation is reasonable and the government needs to intervene foreign exchange market in what circumstances. According to the analysis of the mechanism of the exchange rate fluctuation, we believe that the reasonable RMB exchange rate is not a point but an interval, and the aim of the RMB exchange rate regulation is that the RMB exchange rate can return to the market controlled interval while foreign exchange market failure occurs. A country’s exchange rate is determined by a country’s economic conditions. As long as the internal and external balance of the economic level is stable, the RMB exchange rate is market-regulated, in other words, the balanced and stable mechanism determines the reasonable fluctuation interval of the RMB exchange rate. At last, referring to the research on Behavioral Bquilibrium Exchange Rate, we construct statistical monitoring model system of the RMB exchange rate, including the theoretical calculation model of equilibrium exchange rate and the theoretical model of the reasonable interval of exchange rate fluctuation.From the empirical analysis point of view, according to theoretical model, from the National Bureau Statistics website, the site of the World Bank and United Nations’ UNdata database, we collect annual data of related indicators which is from1994to2009and construct the database of statistical monitoring of the RMB exchange rate. According to the relative Purchasing Power Parity theory, we select1995as the base period and obtain the relative data of related indicators. We estimate the RMB equilibrium exchange rate and the reasonable fluctuation interval through econometric methods such as Cointegration Analysis, H-P Filtering Techniques and Granger Causality Test. We also evaluate the reasonableness of the RMB exchange rate. The result shows that the current level of the nominal exchange rate of the RMB against the U.S. dollar is basically reasonable.