Research On RMB Equilibrium Exchange Rate

For quite a long time, most of the developed countries have argued that the extraordinary foreign exchange reserves and trade surplus are gained by lowering the value of RMB. Besides, since1994, China had carried out the Dollar Peg System, which is held as the main reason of the great trade deficit, manufacturing recession and huge unemployment by those developed countries. Has the RMB exchange rate regime reached the equilibrium? Is it proper for the development of the globule economic? Above are the main questions which are discussed in the paper. In this paper, I establish an improved econometric model on basis of BEER and regard PROD, M2and TOT as the explanatory variables. At first, I carried out the qualitative analysis and then empirical analysis, which included unit root test and co integration analysis on improved econometric BEER. Finally, the consistency of qualitative analysis and the empirical analysis was proved.After the analysis of the results of econometric examination, I have concluded the following conclusion:First, between1980and2011, PROD and TOT has the positive correlation with REER, while M2has the negative correlation.Second, the movement trend of real exchange rate and equilibrium exchange rate is similar. Furthermore, the equilibrium exchange rate has always led the changes of real exchange rate. The biggest difference occurred in1986, which was14.86%.Third, through the comparison of data, we can find the that from1980to1987, the value of RMB was overestimated significantly; between1986and1993, it fell to a certain level, however was still overestimated compared with REER with a margin of9.05%; form1994to1996, with the influence of the unification, the value of RMB began to be underestimated with the biggest difference of7.82%; then, it went to be overestimated again due to the Asian financial crisis; from2000to2008, the phenomenon of being underestimated had never change; until2009, the real exchange rate and REER coincided with each other.According to the above results, the current situation of China and the experiences of some countries with the similar background, we strongly suggest the following direction for exchange rate policy of China:first, slow down the pace of the RMB appreciation; apply to the monetary policy appropriately; third, lower down the dependence on foreign trade; fourth, gradually transfer the possession of exchange in the country to people.