A Study On RMB’s Bilateral Real Equilibrium Exchange Rate

According to the Annual Report on the Internationalization of Renminbi,2015 released by the People’s Bank of China (PBC) in June,2015, the importance of RMB’s bilateral real exchange rate (BRER) is growing and the basis of the RMB’s exchange rate is gradually getting rid of the dollar and more diversified. Therefore, it has important theoretical and practical significance to study the bilateral real equilibrium exchange rate (BREER) of RMB.This paper calculates and studies the RMB’s BREER from two aspects of long-term and medium-short term, and constructs a real equilibrium effective exchange rate index based on the BREER and the share of trade. First, a theoretical model is built to study the RMB’s long term BREER, and panel cointegration analysis and panel error correction model are used to study the connection between relative labor productivity and BRER. The empirical results on the USA, the EU and other countries and regions show that there does exist long term stable relation between the RMB and the currencies of these countries and regions, and the Balassa-Samuelson effect can explain the fluctuation of BRERs. The calculated long term BREER shows that, with the impact of growing relative productivity, the long term BREER was appreciating steadily.Second, with the selection of some bilateral economic variables which would affect the medium-short term BRER, the BEER method is used to calculate and study the RMB’s medium-short term BREER. The calculation results of RMB/Dollar, RMB/Euro and RMB/Yen all show that the medium-short term BREER fluctuated with the fluctuation of BRER and it experienced a relatively slow trend of appreciation.Finally, by comparing the long-term, medium-short term BREER and the BRER, the relationship between these three parties in different periods is studied, and the result shows that both of the RMB/Dollar BRER and the real effective exchange rate of RMB in recent years were in a reasonable range, there doesn’t exit any basis for a continuing sharp appreciation or depreciation of RMB...