Exchange Rate Policy Research, The Effectiveness Of Regulating The Export Of Commodities

The paper discusses the effectiveness of exchange rate policy, especially exchange rate appreciation, to adjust the international trade balance from the perspective of RMB pass-through based on the PTM (pricing-to-market) model. We developed our model on the basis of the research of Mahdavi (2000) on the macro economy of USA, Germany and Japan, combining Chinese characteristic factors to analyze the incomplete pass-through of Chinese exchange rate and the rationales behind it. In our research, we deliberately rule out the raw material cost from the manufacture costs because there is a relatively complete exchange rate change pass-through. It is very important for the study of countries with large proportion of processing trade such as China and it helps to articulately measure the correlation between the costs of export goods and prices.We utilize the data from 1978 to 2007 and Eviews to do the regression. The result indicates that the exchange rate policy cannot effectively in terms of exchange rate pass-through. Our study also shows: the Chinese exports are obviously PTM as the pass-through is incomplete; there is time-lag in the incomplete pass-through; ruling out the imported raw material cost, the domestic manufacture cost does not affect the export goods prices and the exports refund tax is a strong stimulation to the exportation.Further study on the cost induced by the incomplete pass-through discovers: although empirical study also indicateds that countries such as Germany and Japan exhibit PTM during appreciation, the reasoning behind it is different from China's case. Based on the past studies and our analysis, we find that developed countries switch the cost by labor cost control, economy of scale and exports screening mechanisms. These mechanisms, however, are not applicable to China. Chinese companies currently take advantage of favorable policies, such as tax refund, to make up the lost. Though it might be helpful to maintain short-term exports competitiveness, it harms the social welfare as a whole and will impede the long-term economic development.