Perspective Of The Inflationary Environment Of Rmb Exchange Rate Pass-through

Traditional international economic theory suggests that exchange rate movements will be reflected in proportional changes in price levels; more and more facts have proven that the price of exchange rate pass-through in a country is often incomplete. With the beginning of a new round of exchange rate reform from July 2005, the RMB against the U.S. dollar bilateral exchange rate volatility is more frequenter than before did, volatility becomes greater. What kind of impact in import and export enterprises and the overall price level of domestic produce will be caused from the volatility of exchange rate, then it will effect the investment structure in China's production and the government's macroeconomic policy, these are worthy of further analysis. In addition, considering the behavior of the RMB exchange rate pass-through for the development of new monetary policy in China also significant.Through the VAR model and error correction model to measure flexibility of the exchange rate pass-through, revealing the RMB exchange rate volatility and the impact of the domestic price level, and on the basis of the empirical analysis using two sub-inflation environment effects on exchange rate pass-through, so as to provide empirical support for the reform of monetary policy it take the reduction of external shocks and the domestic price level stability as one of the objective . In addition to the corresponding policy analysis, the paper also put forward own recommendation in implementation of inflation targeting in china and the coordination in monetary policy and exchange rate policy. The main conclusions of paper are as follows:1. The RMB exchange rate fluctuations in the prices of imports and productor prices and consumer prices are all not complete, the effective of pass-through were decreased successively, and most of them have 6 months to 1 year or so delay.2. The size of the pass-through was impacted obviously by domestic monetary policy. In particular,a stable inflation environment and low volatility of money supply and exchange rate will result in a lower exchange rate pass-through.3. In recent years, relatively stable monetary policy reduces inflation environment, and actually changed the effective of exchange rate pass-through past few years, this is just the evidence Taylor rule exists in china. This further provide a theoretical basis for inflation targeting in China.