Research On RMB Basic Equilibrium Exchange Rate (FEER)

With the increasingly development in economy, China is playing an important role in the international economy and trade. And the topic on the Renminbi’s equilibrium rate is the hot argument in the world. The argument of the over-or-under valuation on the Renminbi still continues. The international society holds the view that the Renminbi is underrated. The Renminbi faces the pressure of appreciation. In this kind of condition, Renminbi has appreciated greatly in past few years. So for now, is the Renminbi still underrated? Or we may have a thought that the Renminbi may has been overrated. But how much is the degree of the undervaluation or overvaluation? And what consequence will it lead to? In this paper, we will discuss and study this series of questions by using the related theory of fundamental equilibrium exchange rate.Firstly, we put forward the objective and significance of the study, and summarize the domestic and foreign relevant research on the Renminbi equilibrium exchange rate. Through the summarization of the analysis of the Renminbi equilibrium real exchange rate made by the domestic and foreign scholars, we choose the fundamental equilibrium exchange rate model.Secondly, on the basis of the theory of the fundamental equilibrium exchange rate, we construct the fundamental equilibrium exchange rate model of the Renminbi. This key is the selection of the variables. This paper selects a group of factors that China’s economy. These factors are the domestic output, the volume of world trade, the terms of trade and foreign exchange reserves. The selection of this group of variables considered the long-term factors and short-term factors. In this paper, the selection of variables is different from the original method, which makes the whole system in line with China.In third, we make empirical analysis of the Renminbi fundamental equilibrium exchange rate. In the analysis, the annual data from the1980to the2011is used. Then we make the unit root teston the data. At the same time, considering the factors of sample period, we make co-integration analysis by using E-G two-step method. Finally, we draw the corresponding conclusion according to the empirical test.In fourth, on the basis of the previous analysis, this paper makes the reality analysis on the current fluctuations of the Renminbi exchange rate. Then we study and give the difference between the real effective exchange rate and the nominal exchange rate. Then combined with China’s actual economic situation, we put forward the corresponding policy proposal.The study of the Renminbi’s fundamental equilibrium exchange rate broadens the research field, and emphasizes the fact that the exchange rate is influenced by multi-variables. The empirical test allows us to have a better understanding of quantitative analysis of the Renminbi’s equilibrium exchange rate.