A Study on Chinese Real Exchange Rate

Abstract

Abstract. Purchasing power parity theory is often used as an important basis for exchange rate policy, and also the most widely used in the theory of exchange rate decision. Since July 21, 2005, the exchange rate system of China is relatively stable, and also the economic development is the same. Therefore, this paper took the nominal exchange rate of RMB against the Dollar and the consumer's price index of China and US in the past 10 years as a sample, used unit root test and co integration test for purchasing power parity checking. The results show that the purchasing power parity is not applicable to the real exchange rate of RMB.