Research On The Effect Of RMB Exchange Rate Pass-through

Purchasing power parity theory suggests that the exchange rate decided by the relative price of two kinds of currency(or two countries),it is equal to the ratio of the domestic price and the price abroad.In turn to see is that the change of exchange rate will also affect the change of the domestic price level,the difference is that the domestic price level changes in addition to the influence of exchange rate changes,it also depends on the foreign price level changes,when changes in the price level on abroad is unknown or choosing base period of exchange rate is not equilibrium exchange rate,the effect of exchange rate on domestic price level change and influence degree becomes more complex,discusses the influence of the exchange rate change on the price level and the analysis of influence degree is called the exchange rate pass-through effect.Along with the deepening of the reform and opening up in China also strong promote of process on RMB internationalization,as the second largest economy,the changes of RMB exchange rate,will not only affect the operation of the economy in our country,but also considerably affect the world economy,the pass-through effect of the exchange rate becomes a important practical economic issues of global concern.This article,I attempts to take the global economy as the field of vision,and the stable and healthy economic growth in China as the foothold,the paper mainly discusses the transmission effect of RMB exchange rate,deeply analyze the time-varying trend of pass-through flexibility and the reasons for the change of RMB exchange rate.in view of the reality of incomplete pass-through of RMB exchange rate and digging of block factors to the pass-through,the use of new open economy macroeconomic models(NOEM)to discuss the optimal monetary policy choice on policy and out of cooperation,so as to provide a solid reference for our government to make monetary policy.The full text is composed of eight chapters.Chapter 1,Introduction.This paper introduces the background of this topic,the significance of the topic,research ideas,the overall framework and innovation.Chapter 2,The literature review of exchange rate transmission.Combined with the domestic and foreign research to find out the shortcomings,then established the starting point of my own research.Chapter 3,The basic theory of exchange rate pass-through.On the basis of combing related research at home and abroad,combined with the actual situation of our country and the system background of existing related research literature review,to establish the starting point and the main research content of this articleChapter 4,The formation mechanism and the effect of RMB exchange rate pass-through.Firstly,analyzes the evolution of the RMB exchange rate regime;Secondly,based on the theoretical framework of open economics,derived the theoretical framework of RMB exchange rate pass-through.Then analyzes the possible transfer mechanism and influencing factors of the RMB exchange rate.Finally,the trend of the exchange rate and price index line chart is observed to find the correlation between them and describe the relationship between the four indicators by simple regression coefficient.This lays the foundation for the empirical test below.Chapter 5,The empirical research of RMB exchange rate pass-through effect.Using the vector error correction model analysis,I estimated the exchange rate on import price and domestic price pass-through effect by the method of meta,and concluded that the RMB exchange rate on import price and the domestic price of the transfer is not complete,the exchange rate on the import price has the most elasticity,the producer price has less elasticity,and the consumer price has the least.Finally,the impulse response function is used to analyze the response of price to exchange rate shocks.Chapter 6,The effect of RMB exchange rate on the state space model.On the basis of the fifth chapter,this chapter introduces the variable coefficient state space model to analyze the changing trend of the elasticity of exchange rate pass through,and studies the main factors that influence the trend of exchange rate flexibility.Finally,it is concluded that the pass-through rate of exchange rate to import price and producer price is gradually declining,and the degree of transmission to consumer price is rising gradually in recent years.At the same time,monetary policy,trade openness and inflation expectations are the most important factors that affect the exchange rate.Chapter 7,The exchange rate pass-through and china's monetary policy choice.Based on the study of Devereux and Engel(2003)and Devereux et al.,it is assumed that the exchange rate pass-through is incomplete,and the non-tradable goods were introduced into the model to study the optimal monetary policy problem.In Nash equilibrium,the welfare level is higher than that of foreign countries.In the cooperative equilibrium,the optimal monetary policy can effectively improve the welfare level.But the impact on the welfare of the two countries is different and may be reversed,that depends on the extent of the country's exchange rate.Chapter 8,Conclusions and policy suggestions.After a full analysis and research,we get the following conclusions:Firstly,basic transfer effect of RMB exchange rate is low and there is a certain lag,transfer also exist differences of different price index;Secondly,the RMB's exchange rate for IPI and producer prices downward trend after the transfer effect increases first,and transfer effect of the CPI is rising;Thirdly,the main factors influencing the transfer of RMB exchange rate flexibility,including monetary policy,trade openness and inflation expectations;lastly,the globalization and cooperation should become the choice of monetary policy.