Abstract:

In the crucial period of RMB internationalization,the top priority for the monetary authorities is a market-oriented reform of the mechanism of RMB exchange rate and an establishment of a RMB exchange rate target zone. It is essential for the establishment of such a target zone is to determine the central exchange rate. Through Johanson co-integration test between nominal exchange rate and labor productivity,it is proved that there exists Barrassa-Samuelson effect in China. With this as the theoretical basis,the VEC model of RMB central exchange rate is estimated by taking into account policy objectives and other factors. According to the error between the central exchange rate and the average exchange rate,it can be determined that the fluctuation range of the target zone is ±[3%-5%]:When the fluctuation of the exchange rate of RMB against US dollar deviates from the central exchange rate within ±3%,the authorities need not intervene;when it touches ±3%,it is regarded as an early warning signal,and if it exceeds ±3%,the intervention depends on the specific situation;and interventions must be carried out when more than ±5%. To this end,the People's Bank of China should further deregulate general position of SSFE,and avoid to intervene passively;a small portion of the excess foreign exchange reserves should be used to set up an exchange stabilization fund to intervene in the foreign exchange market and manage the exchange rate,and the remaining excess foreign exchange reserves should be converted into gold reserves.

Key words: RMB exchange rate, exchange rate target zone, central exchange rate, the Balassa-Samuelson effect, internationalization of RMB