Analysis of RMB's Real Effective Exchange Rate after the qExchange Rate Reformq

Abstract

Abstract. Based on behavioral equilibrium exchange rate model, this paper analyzes the relationship between RMB real effective exchange rate and the underlying economic variables in July 2005-December 2011. The results show that (1) co-integration relationship exists between the real effective exchange rate of RMB and the selected explanatory variables. (2) Since the exchange rate reform in 2005, the RMB real effective exchange rate and the equilibrium exchange rate showed a fluctuation rise trend. (3) The RMB real effective exchange rate is always in the alternative overestimated and underestimated state. If the width of the target zone is 1%, the RMB real effective exchange rate is basically in disorders. When the width of the target area expands to 2%, the real effective exchange rate misalignment occurred mainly in the early stage of exchange rate reform to late