Analysis Of Rmb Real Exchange Rate Against The Dollar

Since China's exchange rate reform in 1994, the RMB real exchange rate against the dollar(RER) has been in a unilateral appreciation of the trend. Especially since 2005, the rising of RER rose. Later in the 2008 to 2014, RER was in a state of rapid rising. In the current environment of international complex changes and domestic exchange rate system reform, what factors can influence the RER? And how effect?We mainly studied the influence factors of RER. First, we theoretically analyzed the influence factors from two ways. One way is to summarize the main theory of exchange rate determination. The other way is to summarize the influence factors from economic, political and psychological aspects. Second, we deduced the RER decision model from personal utility function. Based on VAR model and the quarterly data from 2003 to 2014, we did the empirical research using the cointegration parameters estimation, impulse response function and variance decomposition. Third, we put forward suggestions for the government under the theoretical and empirical research.We found that, first, the RER was a function of domestic output, domestic money supply, domestic interest rate, domestic commodity price, domestic government expenditure, domestic deficit, domestic foreign debt, American interest rate, American government debt and American foreign debt. Second, the domestic output and money supply are two mainly influence factors. Third, among the American factors, the American foreign debt had the greatest influence for RER. Fourth, the performance of the domestic interest rate and the domestic money supply both conformed to the interest rate parity theory and purchasing power parity theory separately.At last, we put forward some advice. First, the government can use the interest rate policy and the exchange rate policy cooperatively, and accelerate the interest rate marketization reform. Second, the government should keep the robustness of monetary policy and stable the monetary liquidity. Third, the government needs to promote the transformation of the pattern of economic growth and guarantee the economic growth rate. Forth, the government has to regulate the exchange rate reasonably and strengthen the management of RMB exchange rate expectation. Fifth, the government also need to control the flow of hot money and strengthen the capital supervision.