Applicability Analysis of Purchasing Power Parity to RMB Exchange Rate
DOI:
https://doi.org/10.54097/fbem.v11i1.11827Keywords:
RMB exchange rate system, Absolute purchasing power parity, Relative purchasing power parity, Johansen cointegration test.Abstract
This paper takes purchasing power parity(PPP) theory and RMB exchange rate as the research object. First, it uses policy analysis method, deviation degree method, real exchange rate method, and definition method to study the applicability of purchasing power parity theory in my country. Then, it selects monthly data from January 1994 to December 2022, and uses Johansen cointegration test method to test the multivariate cointegration relationship between the exchange rate of US dollar against RMB and the Sino-US price index. According to the research findings, a cointegration relationship exists among the three variables, but the experimental results are inconsistent with the theory. The final conclusion is that purchasing power parity still can't explain our country's exchange rate changes very well, but the feasibility of PPP in our country has been enhanced.
Downloads
References
Fan, J., Han Q. (2008) Analysis on the Applicability of Purchasing Power Parity Theory to RMB Exchange Rate Appreciation. Economic Review, 01: 145-148.
Sun, G., Deng, L., (2005) Judging the Rationality of the RMB Exchange Rate—An Empirical Analysis of the Purchasing Power Parity of RMB Using the Unit Root of Parallel Data. Research on Financial Issues, 10: 36-44.
Ding J., Chen W. (2010) The characteristics of non-linear exchange rate factors in some Asian currency exchange rates —A new method for testing the theory of purchasing power parity. Research in Finance and Economics, 02: 4-14.
Li Z. (2010) Multivariate Johansen Cointegration Test for Purchasing Power Parity of RMB Exchange Rate. Statistics and Decision Making, 15: 142-144.
Hu Y. (2003) RMB Real Exchange Rate and Purchasing Power Parity. Contemporary Finance and Economics 02: 40-45.
Qiu D., Deng X.. (2020). Is RMB Purchasing Power Parity Established? —A Multi-Sample Cointegration Analysis Based on RMB Euro. Financial Theory and Practice, 04: 41-51.
Liu Q. (2013). Nonlinear Adjustment of RMB Real Exchange Rate Based on STAR Model——Comment on the Purchasing Power Parity Test Method. Macroeconomic Research, 12: 121-129.
