An Empirical Study on RMB's Equilibrium Real Exchange Rate from 1980 to 2006

This study employs Hsiao's procedure for selecting optimal explanatory variables to screen the determinants of RMB's effective real exchange rate,estimate RMB's equilibrium real exchange rate,and calculate the real exchange rate misalignment from 1980 to 2006.Our results show that RMB was overvalued by about 20% from 1983 to 1985 and 10% from 1997 to 1998.And it was continuously undervalued from 1987 to 1994 and but was close to equilibrium level from 2003 to 2005.In 2006,however,it was overvalued again,by about 5%,which was still below the warning level of 10%.