A Research On Renminbi Equilibrium Exchange Rate

Renminbi exchange rate reformation has been proceeding as a part of renminbi internationalization,while there are always some international debates on China’s manipulation in renminbi and numerous literatures on renminbi equilibrium exchange rate and misalignment.This paper follows the clue:making a meta-analysis of renminbi equilibrium exchange rate;measuring the equilibrium exchange rate of renminbi;researching an exchange rate condition suitable for China’s economic development.This paper finished those tasks:analyzing the equilibrium exchange rate theory and RMB exchange rate related literature qualitatively and quantitatively;applying a classical theoretical model and a standard econometrics process to measure the real equilibrium exchange rate of RMB and the misalignment of RMB index(CFETS);combing the mechanism of how exchange rate affects the basic economy,proposing RMB depreciation against USD in 2017 on the base of the measured renminbi misalignment.There are four parts as followed:The first part introduces the research background and significance of this paper,then divides the equilibrium exchange rate theory into two parts:exchange rate theory based on macroeconomic equilibrium and exchange rate theory based on purchasing power parity,and reviews the literature respectively.By combing the development process of equilibrium exchange rate theory and comparing those existing literatures,this paper argues that the exchange rate theory based on purchasing power parity is more suitable for the study of RMB equilibrium exchange rate.In the second part,we use the method of meta-analysis to analyze 53 literatures related to the RMB equilibrium exchange rate and RMB misalignment between 2005 and 2015 quantitatively.It is found that the results of RMB misalignment are influenced by objective and subjective factors very much,not only the theoretical choice,model construction,data sources and measurement methods etc.will lead to inconsistencies and even contradictory conclusions,but the author’s country attributes,work attributes,etc.will also affect the objectivity of the conclusions.At the same time,through the meta-analysis it can be found that the RMB exchange rate are fluctuating around the equilibrium exchange and the misalignments are shrinking down.The third part expands the purchasing power parity theory based on the Penn effect(Penn),builds the basic empirical model,and then expands the empirical model considering that the rural population ratio may have some effects on Penn effect.The empirical process uses the economic data of 13 countries and regions related to the RMB basket composition between 1994-2015,and carries out a standard static long panel data analysis measurement.To ensure the comparability of empirical data,data are mainly sourced from International Comparable Project(ICP)and the World Development Indicators(WDI).This part calculates the equilibrium exchange rates and misalignments of RMB against USD from 1994-2015 as well as the misalignment of CFETS in 2015.The fourth part analyzes the current economic situation in China,that is,the economy is large in volume;the level of development is undeveloped;the per capita resources are scarce and the quality of labor is low.Therefore,the development goal of China’s economy in the long run is to improve the quality of labor and productivity;upgrade the industrial structures;and turn to a resource-saving economic development road while ensuring the employment rate.The paper combs the mechanism of the exchange rate on the economy in the medium and long term,constructs the long-term equilibrium exchange rate adjustment model in the condition of the long-term internal and external equilibrium,combines the empirical results of the third part and currently internal-external economic situation and proposes that yuan should depreciate against USD in 2017.