Tests for Purchasing Power Parity of RMB Exchange Rate Based on the Markov Regimes Switching Model

摘要

Based on Markov switching method by Hamilton (1989), this paper examines PPP (purchasing power parity) of Chinese RMB exchange rate by cointegration test of Engel and Granger (1987) from 1980:01 to 2008:08. We find that test of PPP can be depicted in two different endogenous regimes which are associated with important affairs of system reformation of RMB exchange rate, policies adjustment, domestic inflation, and ect. We also find long-run PPP hypothesis of RMB exchange rate exist, while in short-run RMB exchange rate depart from PPP. This paper further analyzes the departure of short-run RMB exchange rate at present, and criticize viewpoint of RMB appreciation from the point of view of PPP hypothesis.