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The RMB equilibrium exchange rate on the base of the structural changes theory |
WING Li-ming WAN Li WANG Shuai |
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Abstract In this paper, we select the terms of trade (TOT), openness (OPEN) and government expenditure (GOVEXP) on the base of the Elbadawi model productivity, to research the RMB equilibrium exchange rate. We try to find the relationship between them. The unit root test proved that the series of TOT, OPEN, GOVEXP are not smooth processes. So we can use the cointegration theory. Before that, we use the change-point theory find 1993 is a change-point year. Because there is a change-point, we should add a virtual variable to the cointegration model. We estimate two cointegration models. One model has the virtual variable, while the other does not have the virtual variable. After comparing the models, we find the first model which has the virtual variable is better.
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Received: 18 November 2008
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Corresponding Authors:
WING Li-ming
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