| Since 2001 we successfully joined in WTO, the growing level of opening to the outside not only introduces our products to the world but also takes in other countries'advanced technology and products, so as promoting native products' upgrading. But with so many years'foreign trade surplus, trade frictions are increasing, and under the pressure from the United States and other western countries, China's exchange rate against the dollar began to increase sharply. Since the last exchange rate regime reform from July 21st 2005, Renminbi appreciated over 25% against the dollar accumulatively. Accompanied by the increasing expect of China's rapid growth and Renminbi's appreciation, capital account surplus aggravates our international trade disequilibrium.CPI which is judged for inflation rate is climbing year and year since 2007,and it reach the highest point in the nearest 10 years. Especially from the last second half year, CPI was rising rapidly, last November's CPI was 5.1% higher than the corresponding period in 2010, and it breaks alarming level of 5% inflation rate. Inflation pressure is still serious this year, for example, CPI increases more than 6.4% and 6.5% against the same period last year respectively in June and July. It has exerted serious impact on people's living quality.Inflation and Renminbi's appreciation happen at the same time in China, Renminbi is depreciating inside in contrast to appreciating outside. The existing domestic and international research literature show that there is a remarkable relationship between a country's inflation level and the exchange rate fluctuations, and this correlation is fulfilled by exchange rate passing through to prices. As an important macro economic international transmission mechanism, exchange rate pass-through reveals the degree of influence exchange rate has on domestic prices. So research on this will help government forecasting inflation and using interest rate, currency exchange rate, open market operation and other combined tools to stabilize current prices and control the inflation level.Based on previous scholars' achievements, this paper will research from two points and take two steps. The first point is about exchange rate passing through to import product prices, the second point is about exchange rate passing through to consumer prices, and in order to join the first level research, this paper at this stage takes imported commodity price as another explanatory variable then calculates whether it has promoted the rising of CPI. The first step is to test if there is a long-term co-integration relationship between these explanatory variables and these two price levels, if so, then establish the error correction models. Along with the adjustment of our economic structure, the relationship between economic variables will change also. The second step is to capture the changing trends by building up state space model and estimating time varying parameters of each variables.The conclusion is:(1)Real effective exchange rate pass-through effect is not complete on price, and the pass-through effect on imported price is more remarkable than that on consumer price. Different from the general research results, this article believes that the appreciation of Renminbi will control the rising of imported price, but will encourage China's inflation rate.(2)In the time-varying parameters, real effective exchange rate's inhibiting effect on imported price is strengthening, by the 3rd quarter in 2009, the elasticity was-0.42; even though its effect on CPI is intensifying too, but it's positive, now its elasticity is close to 0.05.(3) In recent years as the scope of China's foreign trade is expanding and the trade degree is deepening, the world commodity prices have much more impact on our imported prices, and imported prices'influence on CPI is increasing ceaselessly. Imported inflation has become one of the most important factors which affect our consumer price level.(4)At present, the domestic inflation remains high level, to a large extent is caused by the excess release of money before. Since 2006, the money supply's influence degree on price level is increasing largely, it means that the monetary phenomenon has started to show.(5) Once the price level rises it is hard to drop, this is decided by its inertia effect. From this paper's estimation result, CPI's rising inertia function is more stronger than that of imported prices. The innovation of this paper is establishing state space models through two error correction functions, estimating exchange rate fluctuations' time-varying parameters of imported prices and consumer prices, altering research focus on exchange rate's fixed influence on price level, deriving the changing price of exchange rate's influencing strength from a more realistic aspect, providing a reference for country's adjustment on exchange rate policy and control of inflation. But we can imagine that the relationship between exchange rate fluctuations and inflation is very complicated and the deeper relationship is not analyzed in this paper, this can be provided as future research direction of other scholars. |
PDF Full Text Request