Analysis On The Factors Influencing The Sino-us Equilibrium Exchange Rate Based On Purchasing Power Parity

Since the trade surplus continued to expand, the RMB equilibrium exchangerate issue has always been a hot topic in research at home and abroad. At thesame time, our country has been promoting the reform of the exchange ratemarketization. Now, after years of continuous unilateral appreciation, RMBexchange rate flexibility gradually strengthen with the new feature of two-wayfloating. Many scholars believe that this is the market reaction to the exchangerate, and the characteristic will be more obvious while the RMB exchange rategradually close to the equilibrium level. Because the change of two-way floatingis the result of multiple factors interacting with each other, it has an importantsignificance to study the factors influencing the RMB exchange rate for thefurther analysis on RMB equilibrium exchange rate.There is still no consensus about the methods to study the equilibriumexchange rate at home and abroad. These methods are divided into two categories:one is to only consider the price factor effect on the decision of the equilibriumexchange rate based on purchasing power parity; The second method is toestablish the structured econometric model according to the macroeconomicequilibrium constraints to estimate the equilibrium exchange rate, but this methoddoes not consider the national conditions in China. Nowadays, China is in theindustrial structure transformation, so the structure is an important factor to studythe current RMB equilibrium exchange rate with the effect on the economic leveltransferred to the exchange rate.This paper argues that the purchasing power parity reflects the stabilitybetween the currency price and economic level, so taking it as the breakthrough point of the research can not only reflect the nature of the exchange rate morethan other research methods, but also echoes the economic background ofindustrial structure transformation in our country. In the other side, themacroeconomic equilibrium analysis framework can be comprehensive to explorefactors that influence the exchange rate, so it is more beneficial to explain thecomplexity of the exchange rate changes as the analysis framework ofequilibrium exchange rate. In addition, the paper chooses the Sino-US exchangerate as the research object for its typicality. Considering all the above aspects,this article will start from the purchasing power parity hypothesis, through themacroeconomic equilibrium conditions to deduce the purchasing power factor tovarious influence factors of equilibrium exchange rate, and establish theestimation model to evaluate the rationality of the real exchange rate.The research mainly includes the following parts: the first part is tointroduce the research background and the significance of this paper, define thecore concept through literature review and show the research ideas, methods andthe main innovation place. The second part analyzes the relationship between thetheory of purchasing power parity and the other theories, and the way how theyinfluence the exchange rate according to the intrinsic value of the currency or theangle of supply and demand after summarizing the related theories, to form thetheory basis of the equilibrium exchange rate decision. The third part mainly usesdescriptive statistical method to explore various factors influencing the exchangerate in the reality, as the complement of theoretical factors. The fourth part putsforward purchasing power parity hypothesis of the Sino-US equilibrium exchangerate, explores the other factors influencing the equilibrium exchange rate throughpurchasing power factor under the framework of the internal and externalequilibrium, design the estimation model of equilibrium exchange rate, and selects the substitution variables of factors as well as the appropriate sampleinterval combined with China’s national conditions. The fifth part usescointegration technique to do empirical test to analyze the influence degree ofvarious factors on the exchange rate, and takes the cointegration relationship toestimate equilibrium exchange rate, builds the equilibrium exchange rate rangeand then judges the rationality of the real exchange rate between China andAmerica. Finally, through the analys is of the empirical results, the paper putsforward some relevant policy suggestions.In this paper, the empir ical results show the equilibrium relationshipbetween the actual Sino-US equilibrium exchange rate and factors. Variables likethe relative prices of non-traded goods, labor productivity and industrial structureadjustment, the terms of trade, and foreign net influence have an obviousinfluence on the exchange rate. Fina lly, by constructing the equilibrium exchangerate range between two countries, it can find that the real Sino-US exchange rateis at a reasonable level.