An optimal exchange rate interval in a national wealth model

Abstract

The paper is to explore a reasonable range for exchange rates from the perspective of national wealth and consider the penalty cost elicited by international trade and economic imbalance apart from the accumulation of foreign exchange reserves in the construction of a national wealth model. In this way, this paper introduces the weight concept of value at risk and combines Relative Purchasing Power Parity, International Fisher Effect, and Unbiased Forward Rate hypotheses to assess themacroeconomic penalty cost; it also focuses on money supply variation and the net inflow of foreign capital variation to calculate the money supply penalty cost. This study also uses Renminbi exchange rates to conduct secondary data evaluation; the short-term model shows that the short-term Renminbi optimal exchange rate interval is between and Renminbi to one US Dollar and the adjustment direction should approach the short-term optimal exchange rate Sopt At this time, the short-term reasonable adjusted future value interval of national wealth is US$ 43761.45 (million) ˜US$ 6364.22 (million); the long-termmodel shows that the longterm Renminbi optimal exchange rate interval is between and Renminbi to one US Dollar and the direction of adjustment should approach the long-term optimal exchange rate At this time, the long-term reasonable adjusted future value interval of national wealth is US$ 178234.17 (million) ˜US$–17613.38 (million). The analysis result of numerical examples via the proposed models can not only give a reference for the future development of the Renminbi, but also provide a basis for the adjustment of optimal exchange rate intervals for export-oriented countries to accumulate maximized nationalwealth.

Key Words:

• National wealth
• penalty cost
• optimal exchange rates
• value at risk