A Practical Research Of The RMB Equilibrium Rate Based On The BEER Model

After the30years reform and opening-up in China, there are varies of changes in thepolicy of exchange rate of RMB. Gradually, the real exchange rate of RMB went from thehigh-valued point to the rational gap. There is, however, another factor determines the realeffect of the rational point, that is the equality between the real exchange rate and theequilibrium rate. If any differences exist, it will harm both the internal and the externalbalance of China’s economy and cause big lose in social welfare. Furthermore, hurt the effectof the policy that the central government carry out.There are abundent research in the exchange rate area, from the classic Purchase PowerParity of Cassel to the Interest Rate Parity of J.M Keynes. In the modern times, series of newtheories appeared, such as the FEER, BEER, NATREX, etc. which are widely used inemulateing the developed countries and few are used in developing ones. This thesis picks theeconomic data from1996to2009,14year in all, uses the BEER thoery with co-integration tocompute the equilibrium value of the RMB during the14years, deviation between the RMBequilibrium rate and the real value, finally use the ECM model to check the quality of theresult and conclude an advice on the RMB target zone theory. Wish to give some valuableadvice to the policy maker.