Exchange Rate Pass-through Of RMB To Domestic Prices

Exchange rate shake has pass-through effect on imported and exported prices. Based on the theoretical model and our country's automobile market we put forward three hypothesis. This paper investigates the effect of exchange rate pass-through on imported prices in a sample of 24 seasons' data of imported automobile from America over the period from 2001 to 2006.We use the co-integration and VECM methods to estimate the exchange rate pass-through.The first result is that there is big difference between short-run ERPT and long-run ERPT because of the existence of price competitions. The short-run ERPT is 0.079138 and the long-run ERPT is 0.700541.Second, in the short run, when the exchange rate shock the pass-through to the price is only 0.079138, and the pass-through to the cost is 0.183756.Third, we use the Impulse Response Function to analyze the response of the price from the impulse of exchange rate, the result is that there exists about five seasons' lag period. In other word, it will take five seasons to pass-through to the price.