Abstract: At present, the reasonable equilibrium exchange rate should not only consider the basic factors, but also be consistent with the optimal target of monetary policy of the central bank. Based on ball′s (1999) open economy model, this paper introduces the constraint of capital account openness, and obtains the expression of RMB equilibrium exchange rate on the basis of optimizing the central bank′s welfare function. Due to the externality of the central bank′s weight distribution between inflation target and economic growth target, a reasonable equilibrium exchange rate will exist in the form of interval. Based on the analysis of the real effective exchange rate and equilibrium exchange rate range from March 1999 to September 2019, it is found that: (1)the allocation of the central bank′s monetary policy target weight affects the boundary of the equilibrium exchange rate range; (2) the lagging capital account opening leads to the exchange rate imbalance and will not be reversed by the “exchange rate reform” and the change of monetary policy target weight; (3) the early capital account openness will also lead to the exchange rate loss,however, with the growth of economic fundamentals and the improvement of exchange rate system, the exchange rate gradually converges to the average value of the equilibrium exchange rate range; (4) the gradual openness of capital account is not only conducive to the reasonable balance of exchange rate, but also to the improvement of the target control range and autonomy of monetary policy of the central bank.

Key words: central bank, equilibrium exchange rate range, capital account openness, monetary policy function