1997-2013 Empirical Study Of RMB Equilibrium Exchange Rate And China’s Exchange Rate Misalignment

Exchange rate, and important parameter of the internal and external economy of a country, is a critical consideration to lay down the economic policies, measure the state of economical operation and attain the economic profits. Since reformed and opened up thirty years ago, the economy of China has been developed rapidly. The international status and the influence of China have also risen significantly. There is a long-term double surplus phenomenon in C hina. People start to pay attention to whether the RMB exchange rate is imbalance. Some western academicians think thate the RMB has been undervalued over years. They constantly applies pressure to improve the RMB exchange rate. How to measure the RMB equilibrium exchange rate, wheather exist the RMB exchange rate misalignment and what is the RMB exchange rate misalignment become the issues to be resolved.Starting from the basic concept of the equilibrium exchange rate, this article first briefly summarized several previous theories and research methods on the equilibrium exchange rate, including the theory of purchasing power parity(PPP), the equilibrium exchange rate theory(FEER), fundamental factors natural equilibrium exchange rate theory(NATREX), the theory of equilibrium exchange rate in developing countries(ERER) and behavioral equilibrium exchange rate theor y(BEER). According to the adaptability of this 4 exchange rate theories and the basciccharateristics of China’s national conditions, this paper employs the behavioral equilibrium exchange rate model to estimate the equilibrium exchange rate of RMB and the exchange rate misalignment in China during 1997 to 2013;with Error-Correction Model, we analyze the short-term impacts of each variable on RMB exchange rate. The result shows that RMB exchange rate’ fluctuation amplitude did not exceed ± 2% during the sample period. And the misalignment was less than 1% from 2010, this outcome indicates that RMB exchange rate almost reach the equilibrium level. Based on the research conclusions, four proposals were put forward: rational use the direction of government’s consumption as a method to adjust exchange rate; further rationalizing and improve the capital market; gradually increase the self-correcting mechanisms of RMB exchange rate; proceed the economic transformation of China.