Research On The Rmb Exchange Rate Pass-through Effect To The Price

In an open economic conditions, exchange rate fluctuation has a major impact on the development of a country's economy. Analysis of the exchange rate pass-through effect has become a hot issue of international economic circles. From a macroscopic viewpoint,the price of the exchange rate pass-through effect is not only related to a country's trade balance and industrial restructuring, but also related to a country's total domestic demand and total supply balance. From the microscopic viewpoint,the exchange rate pass-through effect not only affects product pricing and output adjustment of the companies involved in international trade, but also influence the monetary authority's decision-making.The paper analyzes the importance of the study of the exchange rate pass-through effect for the domestic economy and monetary policy implications, and describe the development of China's exchange rate regime and exchange rate movements as well as the historical changes of the prices level. Besides, this paper explore the the transmission path of impact from exchange rate fluctuation to the price level theoretically. Then we use the VAR model which contains the RMB nominal effective exchange rate, consumer price index, producer price index, the broad money supply, the industrial added value and oil prices for empirical study. Finally we obtain the long-term cointegration relationship of these variables, and we analyze the middle and short term exchange rate pass through effect based on impulse response functions of VAR model. The results showed that:In the long term, the cointegration relationship exists between the RMB nominal effective exchange rate, consumer price index and producer price index; In the middle and short term, the exchange rate fluctuation has a negative impact on CPI and PPI, that is to say, the appreciation of the RMB exchange rate will make the domestic consumer prices and industrial prices declined, and this negative impact on PPI is more significant than on CPI; After the reform of RMB exchange rate the exchange rate pass-through effect to PPI decreased significantly, however, the exchange rate pass-through effect to CPI slightly increased; The RMB exchange rate pass-through effect has an obvious lag. Additionally, we make the corresponding explanation for the empirical results and on this basis, we make relevant policy recommendations.