Asymmetric Effects Of RMB Exchange Rate Pass-through

Exchange rate pass-through has been an important area of the study ofinternational economic theory. In recent years, with the New Open Macroeconomicssystem into the study of Exchange Rate pass-through, the exchange rate pass-throughtheoretical and empirical research has been greatly enriched and developed. Theasymmetric effect of exchange rate pass-through has gradually become a hot spot athome and abroad. On the basis of previous studies, the paper further investigated theasymmetric response of ERPT with respect to inflation, output gap, andmacroeconomic stability. Since2007, in the steady appreciation of the Yuan, inflationhas been intensified. This phenomenon made domestic academia rethink therelationship between exchange rate movements and inflation. This article analyzedhow the Yuan exchange rate changes affected the level of domestic inflation from theperspective of asymmetric effect of ERPT, then provided relevant policyrecommendations. Therefore, the RMB exchange rate pass-through effect from theperspective of asymmetric has important theoretical and practical significance.ERPT is with incomplete and asymmetric two features. First, this paper describedthe theory of exchange rate pass from these two areas and summarizes the empiricalmethod; this article has clearly described the stage characteristics, highlightingachievements and future research directions of the exchange rate pass-through theoryand empirical research. Second, this paper used the Import price model of Goldbergand Knitter (1997) as the basic theoretical framework and it has been expanded in theempirical analysis. And it has been extended to the empirical model for metrology andinspection-smooth transition regression (STR). STR modeling process is divided intothree parts, namely the model specification, parameter estimation and modelevaluation. Among them, the model setting focused to capture nonlinear effects of theRMB exchange rate pass-through according to the different levels of inflation, level ofoutput gap, level of macroeconomic stability and exchange rate changes in amplitude.Then analyzed and found that the RMB exchange rate pass-through was no nonlinearresponse on the magnitude of exchange rate changes, but was non-linear response in inflation, output gap, as well as macroeconomic stability. Next, this paper estimatedparameters and analyzed results for the three specific nonlinear models. The estimatedresults showed that the appreciation of exchange rate appreciation increased domesticinflationary pressures. The economy from overheating and macroeconomic instabilitywould lead to the rise of ERPT. The resulting lesson is to maintain a low and stablelevel of inflation will reduce the exchange rate pass-rate, and improve the effectivenessof monetary policy; to make the level of actual output and potential output consistenthelps to reduce the fluctuations in the domestic economy and lower exchange ratepass-rate; to maintain macroeconomic stability helps to reduce the impact of theexternal exchange rate shocks on domestic prices.