Research On The Rationality Of RMB Exchange Rate

The reasonability problem of exchange rate is the archaic source problem of exchange rate theory as well as the new front-line problem. The exchange rate is initially generated due to the demand of international settlement, and the reasonability problem is triggered immediately upon its generation, i.e. how much shall the exchange rate be? This problem has been the source and core of exchange rate-determining theory research. Till today with highly advanced international finance, the reasonability problem also changes to the new and frontline derived product pricing problem when the exchange rate reappears as the financial derived product, and then the non-reasonability of exchange rate not only will leads to the trade friction and international imbalance, but also may result into large-scale speculation and arbitrage actions and international financial crisis. Therefore, the exchange rate reasonability problem research always has high theoretic research value.In terms of the exchange rate reasonability problem of RMB, firstly, it falls into the equilibrium exchange rate problem of developing countries, while the current exchange rate theory has great acknowledging and method difference for the equilibrium exchange rate measurement, and the referable research fruits is ever less when extending to the developing countries; furthermore, the RMB exchange rate is the particular example of developing countries, and there are some particular phenomena such as the coexistence of long-term stability of nominal exchange rate and gross economy speedy growing and entering into the top group of world economy and the coexistence of real exchange rate long-term departure from the equilibrium and the sustainable macroeconomic growing rather than the crisis. Therefore, there is great theoretic application value to research this problem. In addition, the RMB exchange rate reasonability is always disputed from a long time, especially the international consensus pressure since 2003 and the double pressure of domestic economic growing and employment stability at the end of 2008 make the RMB exchange rate reasonability problem not only the internationally focused focal and hot problem, but also the doubtful and difficult problem before the macroeconomic control authorities of China. Therefore, it has important theoretic instruction significance and reference value for the deepening of RMB exchange rate reforming and facilitating the health and sustainable development of our market economy to research this problem.In this case, this thesis makes use of relevant theory and my financial career experience, implements the deep research and analysis from the judgment standard and reasonable level measurement of RMB exchange rate reasonability and the source of exchange rate non-reasonability based on the summary and review of historic change track of RMB exchange rate, and then brings forward the integral equilibrium exchange rate standard and the adjustment strategy of combining the long-term and short-term objective. The whole thesis is consisted of 8 chapters:Chapter 1: Introduction. This chapter clarifies the background and significance of RMB exchange rate reasonability problem research, summarizes the existing domestic and foreign research fruits and condition about the exchange rate reasonability problem, introduces the basic framework and research method of this thesis, and then makes the brief self-evaluation for the innovation and shortage of the research.Chapter 2: Theoretic Base of Exchange Rate Reasonability Evaluation. This chapter confirms to use the real effective exchange rate as the reasonable object for exchange rate evaluation by distinguishing different kinds of exchange rates, then abstracts the exchange rate reasonability judgment standard of exchange rate theory in different stages by coordinating the developing venation and internal logic of exchange rate determination theory and introduces the reasonable exchange rate measurement methods (models) of exchange rate theory in each stage one by one, and finally makes the comprehensive expression about how to adjust the exchange rate to the reasonable level from exchange rate adjustment, system selection and policy arrangement based on the exchange rate strategy theory.Chapter 3: Argument of RMB Exchange Rate Reasonability. This chapter summarizes and reviews the historic track of RMB exchange rate change, and then enumerates the bone of each domestic and foreign contention about the RMB exchange rate reasonability ever since 1994, brings forward 2 paradoxes of RMB exchange rate stability and analyzes the potential conflict of RMB exchange rate policy matching with monetary, interest and employment and other strategy.Chapter 4: RMB Exchange Rate Reasonability Evaluation: Judgment Standard and Model Selection. This chapter considers the applicability of each primary model under purchasing power parity, general equilibrium and internal & external equilibrium standard from theoretic shortage, empirical test and national situation, and then deducts the integral equilibrium standard from the internal and external equilibrium standard.Chapter 5: Empirical Analysis of RMB Exchange Rate Reasonability Evaluation: Based on ERER Model. The existing domestic empirical researches with ERER model have great difference on the variable selection and empirical conclusion, thus this chapter measures the RMB equilibrium exchange rate again strictly according to the revised ERER model by Elbadawi. The empirical analysis shows: in the theory, the internal and external equilibrium exchange rate can be used as the long and middle-term judgment standard of RMB exchange rate reasonability well and the ERER model also provides a favorable and detailed measurement model, while in the empirical analysis, the result is not favorable due to the double favorable balances of our international balance of payment, and the particular factors of China economy running such as saving and investment gap and double favorable balances of international balance of payment shall be reconsidered.Chapter 6: Empirical Analysis of RMB Exchange Rate Reasonability Evaluation: Based on BEER Model. This chapter makes use of the feature of BEER model with powerful applicability and attempts to include the particular factors of China economy running into the model to measure the integral equilibrium exchange rate of RMB based on the improvement suggestion for the independent variables put forward in chapter 5. The empirical analysis shows what the BEER model measures is the integral equilibrium exchange rate, which is suitable to be used as the short-term judgment standard of RMB exchange rate reasonability, and the empirical result is also more reasonable.Chapter 7: Theoretic Analysis of Maladjustment Source of RMB Exchange Rate. This chapter makes the theoretic analysis for the source of RMB exchange non-reasonability from the internal, external, long-term and short-term aspect. The analysis result indicates: the singly pegging to USD is the external source of RMB maladjustment in both long-term and short-term; while the dynamic disagreement between the saving and investment gap and double favorable balances of international balance of payment is the short-term internal source of RMB maladjustment, and the economic growing style depending on the external is the long-term internal source of maladjustment. Chapter 8: Adjustment Strategy for RMB Exchange Rate to Regress to Reasonability. This chapter analyzes the feasibility of adjustment under different exchange rate regimes with the strategy to keep the integral equilibrium exchange rate of RMB in short term; while the RMB exchange shall realize the internal and external equilibrium exchange rate finally, therefore this chapter brings forward the comprehensive long and middle-term adjustment strategy of "accelerating the change of economic growing style and realizing the RMB internationalization gradually" in the end.