Study On Suitible RMB Exchange Rate

This paper presents an empirical analysis of the long-term determinants of the Chinese currency effective exchange rate. The empirical analysis builds on synthetic quarterly data from 1988 to 2003, and derives a Behavioural Equilibrium Exchange Rate (BEER) and a Permanent Equilibrium Exchange Rate (PEER) . Its starting point is a vector-error correction model (VECM). The aim of the paper is to give some insights about the possible undervaluation of the Chinese currency. Our results show that China's real exchange rate was a little undervalued in 2002 and 2003 in effective terms . As expected, the renminbi's misalignment is less pronounced. So the reform of the Exchange rate system is very necessary and urgent. Improving exchange rate mechanism, really implementing a single, managed floating exchange rate system based on market demand exchange, accelerating fostering the sound domestic financial floating exchange rate system finally.