The Research Of RMB Exchange Rate Change On The Impact Of Monetary Policy

In the open economy, the monetary policy is influenced by multiple factors, in which the exchange rate contacting domestic and foreign economy is a key variable.The function of exchange rate has an increasingly impact on a country’s external balance and internal economic balance. The exchange rate fluctuations are usually penetrate into the micro and macro economy from the outside and internal operation of an open economy. With the globalization of economics and finance, the exchange rate will affect the international trade, the capital flows and etc, and as a result the domestic demand and supply of money will be changed. Hence, exchange rate is also a determinant of the validity of monetary policy in open economy.Based on the comprehensive theoretical analysis of monetary policy exchange rate transmission channel this paper uses many econometric methods, such as co-integration test, causality test, vector error correction model, recursive VAR model, impulse response, variance decomposition and so on, to do the empirical study about China monetary policy exchange rate transmission channel during1996-2012. The conclusion shows that exchange rate has no significant influence to price and output. At last, this paper gives out the application of monetary policy exchange rate transmission channel and the policy suggestions.The first chapter of this paper mainly elaborates the research background and significance, and then sort out and reviews the literatures about the impact of the fluctuation of RMB exchange rate on China’s monetary policy, and then summaries the research ideas and main innovation and deficiencies. The second part of the theory analysis the impact of the exchange rate changes on monetary policy. In this part, it mainly involves four aspects of the theory:the theory of purchasing power parity, interest rate parity theory, the fluctuation of exchange rate about the balance of payments theory and LS-LM-BP model. The third part is about the empirical analysis of the impacts of the RMB exchange rate changes on monetary policy in China, which mainly about the empirical analysis of the impact of exchange rate changes on prices and output in China. In this part, we use co-integration test, Granger causality test, vector error correction model, VAR model, impulse response and variance decomposition and so on. Through the empirical analysis, we conclude that the appreciation of the RMB exchange rate does not eliminate the inflation, and the impact of exchange rate fluctuations on the output is not very significant. The last part of the article is the effectiveness of countermeasures and suggestions on the improvement of the exchange rate channel of China’s monetary policy transmission mechanism.