An Empirical Investigation of RMB Behavioral Equilibrium Exchange Rate from 1978 to 2007

The Behavioral Equilibrium Exchange Rate approach is one of the most influential approaches to estimate equilibrium exchange rates. With the help of VEC technique, the author investigates the cointegration relation among RMB real effective exchange rate, the ratio of trade surplus to GDP, real effective terms of trade, total factor productivity and the ratio of foreign direct investment to GDP according to BEER approach. The empirical investigation shows that although RMB real effective exchange rate is undervalued over long time period, with the changing of real fundamentals, the RMB exchange rate now is very close to its equilibrium level.