Abstract: In order to estimate the equilibrium exchange rate of RMB, this paper builds a model of equilibrium exchange rate based on PPP theory which returns to the essence of purchasing power of money and can overcome the difficulty of selecting a basket of comparable goods between deferent developing level countries. After empirically testing the equilibrium exchange rate and imbalance of RMB, the paper finds in 2005-2010 years, the exchange rate of RMB against US Dollar was basically at equilibrium in 2007, 2008, and it was overvalued in all other years; moreover, it was undervalued during the period of 2012-2014, only their undervalued amplitude was different; it had been overvalued in 2015. Finally, it has a depreciation trend in the medium-long term since the mean of nominal rate relative to that of real rate is overvalued for 28.03 percent on the whole. As a result, the change extent every year of the exchange rate of RMB against US Dollars was mainly affected by the change of △M2 when the change extent of relative output level between US and China is less than that of △M2. The above conclusions provide some reference for the central bank to intervene in the foreign exchange market.

Key words: equilibrium exchange rate, GDP, △M2, real purchasing power, overvalue, undervalue