【Abstract】This article uses recently developed generalized sup ADF (GSADF) unitroot tests into the analysis of nominal RMB–dollar exchange rates bubbles. Based on the results from the GSADF tests, we find strong evidence of explosive behavior in the nominal exchange rate and investigate twobubbles there. The first bubble is during 2005–2006 which is determinedneither by the relative prices of traded goods nor the relative price ofnontraded goods. The second bubble busts in 2008 during subprime crisisperiod, and which is determined by the relative prices of traded goods butnot the relative price of nontraded goods. There is no bubble before 2005as the exchange rate is under fixed regime. As for this result, someexpansionary monetary and fiscal policies are required in China sincethese are the most efficient and effective under a bubble burst scenario.
【Keywords】multiple bubbles；RMB–dollar exchange rate；GSADF test