Semi-Parameter Regression Estimation Of RMB Equilibrium Exchange Rate

In recent years, China's sustained rapid development and enhanced the ties with the world, which has also brought a number of disputes and friction in the mean time. Among them, the RMB exchange rate reform and the argument about RMB appreciation is the key focus. It is very necessary for us to study on the exchange rate and exchange rate formation mechanism and make empirical analysis and evaluation on the equilibrium exchange rate of RMB. Discussing the future orientation of the reform of the RMB exchange rate will help us better understand and analyze the real problems for China's exchange rate reform and provide a reliable theoretical basis and support to our policy development.Since July 21,2005, RMB adopted the directed floating exchange rate system with the basic of market supply and demand and regulating reference of a basket of currencies. RMB exchange rate is no longer onefold dollar peg and the RMB exchange rate formation mechanism is more flexible. However, from the practical effect showed in recent years, there are still some shortcomings in the current mechanism that need to be improved.This paper mainly revolves around the decision of RMB equilibrium exchange rate and the empirical analysis on it. First, it analysed the current theories about the exchange rate and the equilibrium exchange comprehensively, and made classification and comments. Then, after comparing the applicability of various models, the paper amended the ERER model combined with China's national conditions and established an empirical model of RMB equilibrium exchange rate which has selected the appropriate variable of economic fundamentals. Second, using the data of China and the United States from 1994 to 2009 as objects, it made an empirical analysis with semi-parametric estimation on the model on the basis of traditional co-integration estimation method. The paper compared and analyzed the results estimated by different methods and adopted the more reasonable one to improve the model's accuracy. It pointed out the superiority of Semi-Parameter Regression model which can offer us a new way to the estimation of the RMB Equilibrium Exchange Rate. Finally, error correction model and long-term RMB equilibrium exchange rate model were built to estimate the equilibrium exchange rate of RMB, and the RMB exchange rate misalignment was judged and evaluated. This paper also put forward some policy proposal according to the situation of RMB exchange rate misalignment. It is hoped that this paper can make the readers get a more clear understanding of the RMB exchange rate formation mechanism and provide reference for the future study.