Evaluation of RMB exchange rate from 1995 to 2004 by the exchange rate target zone method

The equilibrium currency exchange rate is the rate that occurs when both internal and external economies are in equilibrium.The equilibrium exchange rate is important for external policy formulation and economic stabilization. An equilibrium exchange rate target zone model for China was constructed using Krugman's theory to study the impact of various fundamental economic variables on the exchange rate between the RMB and the US dollar.The results show that maladjustments of the exchange rate were all below 4% from 1995 to 2004.The equilibrium exchange RMB rate at the end of 2005 forecast using the model shows that the RMB exchange rate is now at a reasonable level.