A Model And Empirical Research Of RMB Real Equilibrium Exchange Rate

Even though the comparison between fixed and floating exchange rate regime have not come close to conclusion, almost all big economic regions are lean to more elastic exchange arrangement. As the growth of China's economic power, people have a special attention on China's developing pattern and RMB exchange rate. At the beginning of this century, or when this subprime loan crisis calm down, Japan and America et al pressed on the RMB regime and push it to reform. On July,21,2005, PBC started a new round of RMB exchange rate reform.Is there really great misalignment of RMB? What is the criteria to judge? Many scholars have conduct researches on this important issue, and real equilibrium exchange rate theory seize a great position among those, which include FEER, BEER, NATREX, ERER et al. Firstly, this paper described the meaning and premise of those theories, then integrated researches on RMB real equilibrium exchange rate, we classified them into two class: structural model and data-engined model, and discuss the limitation of the two methods. In the third part of this paper, absorbing the idea of Edwards(1989), we established a model to determine the equilibrium exchange rate of RMB. In the forth part, take advantage of the formal theory model, we tested the REER of RMB during 1995 and 2008, using the co-integration technique, and analyze the misalignment situation.In the ending of the forth part, this paper criticized the misalignment concluded from co-integration analysis, and tried to establish a model to integrate capital account regulation and foreign exchange market interference. As the model suggested, the structural disequilibrium of the contribution of China's foreign assets lead to a real undervalue of RMB. In the last part, it came to the conclusion and our advice relevant to this research.