Empirical Study Of Balanced RMB Exchange Rate Misalignment

Since reformed and opened up thirty years ago, the economy of China has been developed rapidly. The international status and the influence of China have also risen significantly. There is a long-term double surplus phenomenon in China. People start to pay attention to whether the RMB exchange rate is imbalance. Some Western countries think that the RMB has beer undervalued over the years. They constantly applies pressure to improve the RMB exchange rate. How to measure the RMB equilibrium exchange rate, wheather exist the RMB exchange rate misalignment and what is the RMB exchange rate misalignment become the issues to be resolved.Starting from the basic concept of the equilibrium exchange rate,this article first briefly summarized several previous theories and research methods on the equilibrium exchange rate, including the theory of purchasing power parity (PPP), the equilibrium exchange rate theory (FEER), fundamental factors natural equilibrium exchange rate theory (NATREX),The theory of equilibrium exchange rate in developing countries (ERER) Behavioral Equilibrium Exchange Rate the theory (BEER).According to the basic characteristics of China’s national conditions and based on the Behavioral Equilibrium Exchange Rate(BEER) model,using quarterly data the fist quarter of1988to the third quarter of2012we established a model of the RMB Equilibrium Exchange rate containing six basic economic factors as explanatory variables, which were exchange rate policy(ERP), money supply quantity(M2),net foreign assets (NFA) openness(OPEN) and the terms of trade(TOT).Then we estimated the equilibrium exchange rate of RMB based on the econometric cointegration technology, error correction model and H-P filter method. At last we used H-P filter method to estimate the long-run equilibrium real exchange rate and the exchange rate misalignment in China. Through estimating the exchange rate misalignment of RMB, we found that from the fist quarter of1998to the third quarter of2012there were varying degrees of the RMB real exchange rate misalignment and the misalignment were relatively small.Finally,based on previous empirical analysis, we put forward a number of policy to reduce the exchange rate misalignment and maintain a relatively stable exchange rate.