Under the framework of the monetary model, this paper investigates the adjustment of deviations from RMB equilibrium exchange rate, by Enders’s (2001) method of threshold cointegration. Through the tests of linearity and stationarity and the analysis of half- life, we find that deviations from RMB equilibrium exchange rate have asymmetric adjustment which appears two different mean reversion processes, such as quick and long - persistence respectively and the threshold effect significantly exists. The results also show that regime adjustment of RMB exchange rate in July, 2005 is timely, exact and effective.

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