A Study On Exchange Rate Regime Of RMB

In an open economy,the central task of government macroeconomic control is to realize the internal and external balance.There were many economic literatures that introduce how to settle the conflict of the internal balance and the external balance by the policy mix.But the author considers preventing in advance is more effective than settling afterwards. So,in this paper,the author will make an effort to seek a more suitable exchange regime to prevent the conflict of the internal balance and the external balance.Firstly,the author estimates the equilibrium exchange rate using cointegration and H-P filter based on the model of BEER(Behavioral Equilibrium Exchange Rate).The demonstration shows RMB is underestimated currently and if we continue the US dollar-pegged exchange rate regime the situation of misalignment will go on.So,we should reform the exchange rate regime of RMB.Secondly,the author analyzes the objectives of the reformation of the exchange rate regime.Because the underestimated exchange rate will disbennifit the macroeconomic economy,the author gets the first objective—the exchange rate should be more flexible to reflect the direction of equilibrium exchange rate.Considering the real situation of our country, the author gets the second objective—the exchange rate should retain mainly steady.Thirdly,the author elicits the managed floating exchange rate regime is the optimum exchange rate regime.Under this exchange rate regime ,the exchange rate of RMB can reflect the direction of equilibrium exchange rate ,so it can prevent the conflict of the internal balance and the external balance effectively.