Response characteristics of the CVT system for a parallel hybrid electric vehicle (HEV) are investigated. From the experiment, CVT ratio control algorithm for the optimal engine operation is obtained. To investigate the effect of the CVT system dynamic characteristics on the HEV performance, a hardware in the loop simulation (HILS) is performed. In the HILS, hardwares of the CVT belt-pulley and hydraulic control valves are used. It is found that the engine performance by the open loop CVT ratio control shows some deviation from the OOL in spite of the RCVs open loop control ability. To improve the engine performance, a closed loop control of the CVT ratio is proposed with variable control gains depending on the shift direction and the CVT speed ratio range by considering the nonlinear characteristics of the RCV and CVT belt-pulley dynamics. The HILS results show that the engine performance is improved by the closed loop control showing the operation trajectory close to the OOL.