Estimation Of RMB Exchange Rate Misalignment And Its Influence On International Capital Flow

Exchange rate has attracted a lot of scholars’attention as one of the most important macro-economic indexes. Nowadays, with the development of China economy, there is much controversy over the underestimation of RMB exchange rate. Especially after reformed in1994and2005, whether RMB exchange rate is close to its equilibrium level remains to be seen.In this context, the author exploits the BEER model, taking RMB real effective exchange rate as explained variable and net foreign asset, term of trade, the degree of trade opening and government expansion as explaining variables. After analyzing the data from the first season in1994to the forth season in2012and with the help of a series of quantitative methods, the equilibrium exchange rate of RMB is calculated and the misalignment of RMB exchange rate is found.According to the conclusion of the context, the main deviation of RMB exchange rate is separated to three periods:firstly, from the first quarter in1994to the third quarter in1998, there was an overestimation of RMB, but the overestimation was declining; secondly, from the third season in1999to the forth season in2001, the RMB exchange rate was underestimated, with a degree from1.1%to2.8%; thirdly, form the forth season in2008to the end of2012, there was a moderate overestimation of RMB exchange rate at the degree of approximately2%.Then, after calculating the international capital flow of our country, three important currents were found:firstly, during the period of1994and1998, except the net inflow in a couple of years, there was net outflow of international capital in almost every season and the quantity was increasing; then from1999to2004, the situation became better with a smaller and smaller net outflow and in the firth quarter of2002, the capital flow turned to positive; thirdly, from2005to the end of2012, the international capital flow fluctuated more violently. Then, the relationship between the misalignment of RMB exchange rate and the international capital flow is investigates, and the conclusion is that there is negative correlation between them.At last, considering all conclusions of every part of the context, the author gives some policy proposal in terms of the RMB exchange rate regime and international capital flow to help the government better deal with those issues.