The Research On The Measurement Of RMB Effective Exchange Rate

Since the collapse of the Bretton Woods system, the volatility of the bilateral exchange rate of the most countries has increased significantly, a country’s currency will appreciate compared to some other country’s currency, in the meantime, may deppreciate to some other countries, in this case, it is difficult to reflect the overall fluctuation of one currency through the bilateral exchange rate. Consequently, the traditional effective exchange rate index based on a trade-weighted has taken replaced of the bilateral exchange rates to be an indicator which measure the overall fluctuation of one currency and its competitiveness around the world. However, In the era when economic globalization deepened and mutual capital flows increasingly frequent, There is limitation when we use the traditional effective exchange rate to judge the influence on one country economic from the fluctuation of its currency. Because it does not take the capital account into consideration. In order to measure the volatility of the RMB exchange rate and the competitiveness of goods trade and assets trade of china more comprehensively and effectively, it is necessary for us to take the capital flow into consideration,when we construct the effective exchange rate index system of RMB, which contains the three following index:RMB effective exchange rate based on the trade weight, RMB effective exchange rate based on the capital weight and RMB effective exchange rate based on the trade-capital comprehensive weight.Taking the characteristic of the economic development in current china and comparing the different measures, This paper improve the current RMB effective exchange rate index system which based on the traditional effective exchange rate which base on the trade weight. and introduce the extra two index which are based on capital weight and trade-capital comprehensive weight respectively.This paper discuss the relationship between the three index and the exchange reserve of china in the use of Cointegration and ECM model and VAR model, finally, making the following conclusions:(1) In the system of RMB exchange effective rate, the index of the effective exchange rate of the RMB under the three different weights are basically under the same trend. However, the weakness and strengthen of the trend of the three are different. Therefore, recently the voice from the western countries based on the trade weighed RMB effective exchange rate that RMB are under valued is no so persuasive. Because the capital weighted RMB effective exchange rate shows that the degree of appreciation of RMB obviously exceeds that of trade weighted RMB exchange rate shows.(2) China’s net exports are very sensitive to impulse from the trade-weighted effective exchange rate of the RMB; FDI has the long-term cointegration with the capital-weighted effective exchange rate of the RMB and has no long-term cointegration with the other two index. Additionally, there is no obvious relationship between the three index and China’s foreign reserves. it can be seen from the empirical results, the effective exchange rate of RMB under different has different effect on China’s macro-economic variables.