Study On Dynamic Purchasing Power Parity Theory And Its Application

The globalization has been accelerating with the disintegration of the former Soviet Union together with the end of the Cold War since the 1990s. Moreover, International economy, political and military environment have undergone a fundamental change. Peace and development have become the two major themes of the contemporary world. Therefore, some economic theories can't adapt to the new situation and they need to be reappraised, especially the exchange rate determination theory. Since 1994, China has become market economy regime country. Chinese government announces that the RMB's exchange-rate regime is managed floating regime based on supply and demand. In fact this exchange-rate regime is to request to dissolve the short-term fluctuation at following the long-term trend of RMB's exchange rate. Because there isn't a correct long-run exchange rate determination of RMB, Chinese government doesn't judge the long trend of RMB's exchange rate. RMB's exchange-rate regime has to execute fixed rate regime pegged to dollar and RMB fall into passive appreciation dilemma.Although there are many long-run exchange rate determination theories, the purchasing power parity (PPP) doctrine is the most convincing. Because china has not mach the prior condition of static PPP theories, static PPP theories (absolute PPP and relative PPP) can't find their application in China. So creating an RMB's exchange rate determination theory is urgent importance. This dissertation systematically puts forward dynamic purchasing power parity theory (DPPP theory) and set up China's opening economic macro-economic model based on the Mundell-Fleming model and the DPPP theory. This dissertation mainly includes:1. Under the prior condition of "the price of trade goods has same fluctuation trend", this dissertation develops a theoretical mold and puts forward DPPP theory from the aspect of current account balance. Then this dissertation revises the Solow economic growth model and the traditional currency model. By using the revised models and portfolio balance model, this dissertation proves that DPPP theory is correct from the aspect of stream flow analysis and stock analysis .2. This dissertation tests the DPPP theory. First, this dissertation tests the DPPP theory by using the time series data of developed economies, the "four countries" in Latin America and East Asian countries and regions whose economy has experienced fast growth. Second, this dissertation tests the DPPP theory by using the relative price level's sectional data of all economies. The above test shows that the DPPP theory is correct and is applicable to China in market economy.3. This dissertation set up China's opening economic macro-economic model based on the Mundell-Fleming model and the DPPP theory. On this basis, this dissertation analyzes China's macro-economic problems with both the traditional Mundell-Fleming model and its revised revision. By comparison, this dissertation points out that we can't draw the correct conclusion without using the revised Mundell-Fleming model to analyze China's problem.4. This dissertation makes an analysis about the tendency of RMB's exchange rate on the basis of DPPP theory and points out that the fundamental factor of RMB having no devaluation during the Asian financial crisis is that RMB value was underestimated severely, and that appreciation will be a sure trend of the exchange rate of RMB...