Empirical Study Of Equilibrium Exchange Rate Of RMB

As one of the core issues in the exchange rate theory, equilibrium exchange rate determines the long-term change of direction about the exchange rate. It provides the foundation for judgment whether the exchange rate level is reasonable and for government to make economic policy. With deepening of china’s economic openness and economic development, China’s foreign trade is in surplus, and foreign exchange reserves rise rapidly. Therefore, the exchange rate of RMB is becoming a key factor which impacts the development of Chinese economic, at the same time the RMB exchange rate has received more and more attention. Some scholars believe that the RMB exchange rate is underestimated while the others vote the opposite and think it has been overvalued. For this problem, the rationality of the RMB exchange rate should been taken into account and the key is the level of RMB Equilibrium Exchange Rate.This paper illustrates the rationality of behavior equilibrium exchange rate by inducing the behavioral equilibrium exchange rate theory and comparing it with the other equilibrium exchange rate theory. According to the actual national conditions of China, five elements, which are labor productivity, openness of China, foreign net assets, the terms of trade and government spending, have been chosen as the economy basic elements based on the BEER model. Using quantitative methods, such as ADF unit root test, co-integration analysis and H-P filter, to measure the RMB equilibrium exchange rate and the disordered degree from the first quarter of1996to the fourth quarter of2012.Through the calculation of the exchange rate misalignment, it is evident that the disorder of RMB real exchange rate has experienced a "four underestimated five overestimated ". However, the highest disordered degree has never exceeded10%. According to the actual economic situation, this paper analyses the reason of exchange rate misalignment from the first quarter of1996to the fourth quarter of2012. However, based on the empirical data, the effective exchange rate of RMB has not been underestimated, but a little overestimated in fact.At the end of this paper, it analysts the influence of the exchange rate misalignment on economics which include trade, domestic production and employment, foreign exchange reserves and resource allocation. In addition, it proposes some policy suggestions on industrial structure, optimization of the trade structure and foreign exchange reservation to improve the RMB effective exchange rate misalignment.