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An Empirical Study of RMB Equilibrium Exchange Rate

Author: WuKaiBo
Tutor: WangXueHong
School: Yunnan University of Finance
Course: Finance
Keywords: Equilibrium exchange rate Exchange rate misalignments BEER model Error correction model
CLC: F832.6
Type: Master's thesis
Year: 2011
Downloads: 106
Quote: 0
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Abstract


Since reform and opening, the RMB exchange rate disorders and whether the choice of exchange rate regime has been a hot issue of concern and foreign scholars. In the next period of time, whether you want to continue to appreciate the RMB exchange rate, the appreciation of how to determine the magnitude of the RMB exchange rate formation mechanism reform and the direction of these problems are solved our basic problems. Economic history tells us that a country's currency is undervalued or overvalued will have a negative impact on economic development, underestimate or overestimate the magnitude of the greater potential for harm is greater. Only one country's currency is substantially equal to the real exchange rate equilibrium real exchange rate, it will be on economic development has played a good role. It is in the above basic problem-oriented, paper reviewed the classical theory of the equilibrium exchange rate on the basis of the decision to select one of the Behavioral Equilibrium Exchange Rate Theory as a theoretical basis, through the collection of relevant economic data, empirical analysis of the reform and opening up three decades of real exchange rate situation, and then combined with the actual situation of China's economic development, analysis of the RMB exchange rate misalignment on the overall economy. Study found that: first, the cointegration test results indicate that the actual impact of RMB Equilibrium Exchange Rate economic factors are Openness, trade, government spending, money supply and spreads abroad, of which Openness and government spending the equilibrium exchange rate has a greater impact. Openness each increase of 1%, it will cause real exchange rate depreciation 0.861338%; government spending to GDP for every 1% appreciation of the real exchange rate will cause 0.952710%. Second, in the context of reform and opening up, the RMB exchange rate has been in a situation of imbalance. 1981 to 2010 30 years, the RMB real exchange rate misalignment is the norm, it has gone through two stages of the three stages of overvaluation and undervaluation. Among them, the degree of underestimation of 1994 reached 24.8%, the highest since the reform and opening up to the maximum level of underestimation. Overestimate the magnitude of the maximum of 17.3% in 1989. The current exchange rate is slightly underestimated. Third, the long-renminbi exchange rate misalignments on the adverse impact of China's economy gradually revealed. Especially the 2008 global financial crisis, the troubled western economies after the collapse of demand for China's exports, China's foreign trade over the past over-reliance on export-led economic development disadvantages are also apparent, slowing economic growth, China's economic growth faces patterns and economic restructuring under increasing pressure. Theoretical and practical experience tells us that in the past three decades, causing renminbi exchange rate misalignment factor is diverse, the RMB exchange rate formation mechanism in which the dominant role. Of the RMB exchange rate formation mechanism reform of the road is still long way to go. Currently there are some real exchange rate undervalued, face upward pressure. However, many international exchange transformation lesson tells us that incremental changes in order to ensure macroeconomic stability, our country does not have the sharp appreciation of the RMB exchange rate conditions, so the yuan should be taken in the future strategy of gradual appreciation. Finally, the paper puts forward some suggestions RMB exchange rate reform, pointing out that China should gradually increase the flexibility of the RMB exchange rate, RMB interest in advancing the process of achieving the market to let the yuan exchange rate determined by the market.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Exchange rate,foreign financial relations
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