Estimate RMB Equilibrium Exchange Rate Uses PPP Theory

2008, international financial crisis triggered a global economic recession. Meanwhile, in china, trade surplus and high foreign exchange reserves has been maintained a long time, the issue of Appreciation RMB exchange rate became the focus of International public opinion. RMB exchange rate implemented a managed floating system pegging to"a basket of currencies"in 2005; RMB has been in the process of appreciation. Exchange rate in 2009 relative to 2005 would rise 20%; however, the international calls of appreciation of RMB are growing. To properly measure the equilibrium exchange rate of RMB is the key issue of analyzing RMB exchange rate.In this paper, We implied the three variables model of purchase power parity theory and econometric methods of Engle and Grange co-integration ,non-linearly Fourier function unit root test ,studied the exchange rate between China and USA,Japan and Hong Kong. The results of them supported the purchase power parity in RMB exchange rate and RMB was under-valued. In the end, based on the level of China's economic development, from the perspective of internal and external macroeconomic equilibrium, analyzing the current RMB exchange rate system, and made the appreciation of the RMB exchange rate short, medium and long-term plan.Except the introduction, The study divided into the following three parts:Chapter 1, theory,methods and literature review. mainly include the following several parts, the introduction of purchase power parity(PPP) theory, the econometric models of purchase power parity(PPP),the review of study in RMB exchange rate and econometric methods, In the end of this part, we introduced the method of non-linearity Fourier function unit root test.Chapter 2,main parts, First, unit root test of time series of several variables; the second, used Engle and Grange co integration,tested the residual time series, and non-linearity unit root test method, supported the purchase power parity theory; we analyzed the Yuan's nominal exchange rate, fluctuations in the relative purchasing power parity method and purchasing power parity exchange rate.Chapter 3,The Choices of China's RMB Exchange Rate Regime.