A Empirical Investigation On The Rationality Of RMB Real Exchange Rate

RMB attracted the attentions of the world twice in 1997 and 2003, which surprised the over world There still exist disputes whether RMB will go appreciating, depreciating or remain stable. Western governments execute great pressure on our government about the exchange rate. With the further opening and deepening marketilization of our country, our government places emphasis on how to maintain both outer and inner economic equilibrium in terms of exchange rate policy effectively. Therefore, it is of great significance that we construct a exchange rate model to appraise the rationality of current exchange rate, instruct current exchange rate policy and perform the function of it in the national economy.There are three problems as to real equilibrium exchange rate: the definition and measurement of real exchange rate and real equilibrium exchange rate, and how to reconstruct the exchange rate system if it exists the misalignment. According to such logic, based on the empirical study on the RMB equilibrium exchange rate , this paper firstly, introduces the theory of real equilibrium exchange rate, focusing on developed and developing countries. It is pointed out that real equilibrium exchange rate and real exchange rate are endogenous variables, and the misalignment is the result of structure imbalannce and system inflexibility between outer and inner economy. Secondly, this paper describes the main empirical study methodology of contemporary real equilibrium exchange rate, and the theory of cointegration analysis. And says that the investigative method of this paper is a single equation model in reduced-form general equilibrium based on the theory of cointegration analysis.The focus of this paper is empirical investigation .Firstly, guiden by these investigations and reseaches ,this paper establishes a theorical model about the determination of RMB equilibrium exchange rate,which is the base of this paper. And then modifies the fundmental economical variables in the model. Secondly, this paper estimates a cointegration analysis eqution in the long period, and VECM and Impulse respond function in the short period,through unit test on time series. And then the impacts of real economical variables, including the impccts of fiscal and money policies and nominal exchange rate in the short period, are estimated .In order to get the "sustainable" or "permanent" values of the fundmental approximately, this paper use Hodrict-Prscott filter to smooth the time series. The Equilibrium exchange rate is derived and the misaligment is also calculated.This paper gives a appraisal on the rationality of RMB real exchange rate through the result of these models above based on the facts of China, and some conclusions that there have been two overestimation and two underestimation since 1980.Openness,terms of trade, governmental consumpation, technological progress, investment rate and FDI are the main reasons on explaining the misalignment. The paper also maintains that influences of fiscal and money policies and nominal exchange rate are marked in status of influencing and adjusting the misaligment. This paper also points out that the real exchange rate is a economical medi-variables, and a result of adjustments of economical structure and mechanism and system reform. The misaligment or not of real exchange rate will be one of the standards of the microeconomical policies.The basic ways of improving appreciated management of real exchange rate include continually deepening strategical marketilization, and system refom and regime innovation,and adding flexibility of microeconomical policies, especially exchange rate policy.