The Trend Of Exchange Rate Pass-Through

The exchange rate is a core tool variables in the open economic environment,plays an important role in maintaining a country’s internal and external balance. Theimpact of the exchange rate on the price of tradable goods (the exchange ratepass-through)-that is in relation to a country’s balance of payments adjustment speedand effect, monetary policy implementation effect, trade competitiveness andeconomic impact of the international transfer and other problems.The trend ofchanges in the exchange rate pass-through has become the macroeconomics andinternational economics research hot spot, and the latest research will start this trendchange back to the setting of monetary policy rules.In this context, according to the fixed bias of monetary policy rules anddiscretionary monetary policy rules (Generally, fixed bias monetary policy rules aremostly adopted by developed countries, and the bias of discretionary monetary policyrules with China), this papeer applys dynamic stochastic general equilibrium (DSGE)model and two different Markov-switching model, and successively analysised thedynamic of exchange rate pass-through under the two monetary policys the rules.Themain conclusions are as follows:First, the exchange rate pass-through downward trend and stable in a lowinflation environment,as the western literatures generally confirmed, essentiallyowing to the generally adoptted fixed bias monetary policy rules (especially withmore emphasis on the control of inflation monetary policy). And under this rules, theimpact of technical shocks and monetary policy shocks on the effect of exchange ratepass-through significantly influenced by the nominal wage stickiness, as nominalwages adjust more flexible, the above impacts on the effect of the exchange ratepass-through differences more greater and the elasticity more weaker.Second, in this paper, according to the TVTP-MS model, the RMB exchange ratepass-through present obvious markov swithcing characteristics in recent years, wethen turn to the implement of monetary policy. Research suggests that it also hasmarkov swithcing characteristics(this also shows that China’s monetary policypresents discretionary characteristics),and concides with the state of exchange ratepass-through, also ahead of it. Third, according to the variation of inflation under the implementation ofdiscretionary bias monetary policy in our country at this stage,we proceed in-depthstudy. Found that in the tightness of monetary policy under the district systemchanges, the level of inflation has strong volatility (including volatility andfluctuations in frequency), and with the changes in the monetary policy of the districtsystem fluctuations also show some markov swithcing features. Further studiesFurther research shows that, because of inflation under the discreationary rule ofmonetary policy present markov switching change, so that under this influence thedynamic ofexchange rate pass-through has markov switching characteristics.Finally, our study also found that fluctuations in RMB exchange rates can reducein a certain extent, the pass-through to the price of consumed goods, but compared toinflation, the impact of exchange rate fluctuations is obvious weak and its impactmechanism has significant local Chinese characteristics."Combined with the above research conclusions, in this paper, we also give someadvices on the future China should choose what type of monetary policy rules to thestability of the effective domestic economy at the same time reduce the impact fromforeign to domestic economic.The innovation of this paper is to analyze the trend of change of the exchangerate pass first in the perspective of monetary policy rules; combined with dynamicstochastic general equilibrium (DSGE) model and two different Markov-switchingmodels, the dynamic characteristics of exchange rate pass-through under fixed biasmonetary policy rules and discreationary monetary policy are fully analyzed.