Empirical Research Of The RMB Equilibrium From 1994 To 2014

Exchange rate is greatly related to the national development, it has a tremendous impact on the country’s political and economic interests. Since China’s reform and opening up, the continuous economic development and international status greatly improved, the RMB exchange rate has become the focus attention of the international countries. China’s dependence on the foreign trade has long been highly nearly from 8% at the beginning of reform and opening up to 41% in 2014(nearly 70% in 2006), while the RMB exchange rate has a very significant impact on China’s export and import. It also has a profound impact on China’s domestic economy development, so study the RMB exchange rate issue is very meaningful.This paper introduces the basic contents related to the exchange rate on the main equilibrium exchange rate theories. According to comparative analysis of these theories, select the ERER model to estimate the equilibrium exchange rate of RMB. The final economic sample interval from1994 to 2014, factors selected for the government purchase, terms of trade, the money supply and economic openness; to get the cointegration test by using the E-G two-step method. Then construct the error correction model, the research finds that the self-correcting imbalance of RMB is not very strong; then use the impulse response function analysis, research of the short-term impact to the RMB exchange rate of the variables; then obtain the equilibrium value of basic economic variables with H-P filter method, and calculate the equilibrium real exchange rate of RMB and the degree of misalignment, and based on the degree of misalignment, analysis the economic effects of it, and use the cointegration test the misalignment on the export and import trade, the outcome prove that the real exchange rate misalignment has a certain effect on the trade. The paper also study the central exchange rate based on the RMB to the dollar. Finally, some policy recommendations are proposed based on the conclusions of empirical research, including suggestions to improve our country’s exchange rate system and so on.