Exchange Rate Regime Conversion,Key Events,and Purchasing Power Parity Of RMB Against Euro

Among the many exchange rate determination theories,the purchasing power parity theory as a comparatively basic exchange rate determination theory has always maintained a high degree of research interest.At the theoretical level,purchasing power parity has simple logic and a more intuitive expression.Although the theoretical assumptions of purchasing power parity are more stringent,with the improvement of measurement methods,the testing of purchasing power parity at home and abroad has never stopped.On a practical level,in addition to participating in the International Comparison Project(ICP)to compare the GDP of the two countries,purchasing power parity can play a certain guiding role in predicting the financial crisis,judging exchange rate mismatches,and acting as nominal exchange rate anchors.In the theoretical preparation stage,this article first combed the development process of the international exchange rate system(starting from the Bretton Woods system),the reform process of the RMB exchange rate system,and the emergence and development of the Euro.Then it introduced the traditional purchasing power parity theory and the development of purchasing power parity.Traditional purchasing power parity theory includes the law of one price,absolute purchasing power parity,and relative purchasing power parity.The development of purchasing power parity introduces the wage cost exchange rate theory and the elastic price currency theory.The research conclusions of purchasing power parity at home and abroad have always been quite different.Different research countries,research methods,and research samples will affect the final research results.Therefore,in the second chapter,this paper summarizes the research results at home and abroad systematically.It is found that few studies on the purchasing power parity of the RMB exchange rate have divided the sample according to the time node of the events that affect the RMB exchange rate.In addition,most of the existing research on RMB purchasing power parity has chosen the exchange rate between RMB and USD.Some research results show that purchasing power parity has a certain degree of explanation for RMB to USD exchange rate.It remains doubtful whether the exchange rate still has the same interpretation strength,which is also the research orientation of this article.The empirical part is divided into two parts: full-sample co-integration test and multi-sample co-integration test.The full sample co-integration test is based on the sample from July 2002 to December 2018.The multi-sample co-integration test section first divides the entire sample according to time points of key events such as the reform of the RMB exchange rate system and the global financial crisis,and then performs a co-integration test on each sub-sample.Finally,the PPP between USD andEUR was compared in the same range,and VECM analysis,impulse response,and variance decomposition were further performed on the samples in which PPP was established.Based on the empirical results,this paper puts forward some enlightenments and policy recommendations,and draws the following research conclusions:(1)After RMB exchange rate formation system reform and the steady operation of the Euro(2005.8-2018.12),The whole test was established;(2)As a non-sovereign country currency,the Euro also applies the classic theory of purchasing power parity;(3)The 2008 financial crisis is an important event that affects the exchange rate market,and the establishment of RMB vs EUR purchasing power parity in the long run has not been affected;(4)The China-Europe exchange rate,the Euro zone HICP,and the Chinese CPI are in turn the main factors that impact the deviation of the RMB against the Euro in purchasing power parity.To sum up,purchasing power parity can explain the exchange rate of RMB against Euro to a certain extent,and has a certain guiding effect on China-EU economic and trade exchanges.