RMB Equilibrium Exchange Rate and Exchange Rate Misalignment——Based on Monetary Analysis Model

This paper establishes a real exchange rate model based on the monetary analysis framework.The model shows that relative money supply,relative national income and relative interest rates at home and abroad are the determinants of equilibrium exchange rate.Based on theoretical models,it makes an empirical test and estimates the equilibrium real exchange rate and misalignment by the data from 1994Q1 to 2012Q2.The results show that the level of the RMB exchange rate presents alternately overestimated and underestimated during the sample period,and certain repair adjustment mechanism exists.Meanwhile,RMB exchange rate does not significantly deviate from the equilibrium level overall and has no substantial underestimate.Therefore,China should maintain the RMB exchange rate formation mechanism reform of autonomy.