Study On The Phenomenon Of The External Appreciation And The Internal Depreciation Of RMB

Since the reform of exchange rate system in2005, there is a phenomenon thatappreciation external and depreciation internal are coexisting in same time for RMB,which make the different trends for internal and external value. Moreover, the tendencyhas continued to expand. This paper indicates the inside and outside purchasing power ofRMB with all kinds of domestic prices and exchange rates respectively. Discuss thedeviation of internal and external purchasing power of RMB from the two aspects oftheoretical analysis and empirical analysis and from the angle of transfer effect betweenthe various types of domestic prices and exchange rates. Study on the phenomenon of theexternal appreciation and the internal depreciation of RMB, not only helps to understandthe macroeconomic impact of the price and exchange rate fluctuations, but also give usreference value for appropriate monetary policy decisions and practice. In addition, how toselect the appropriate exchange rate system in China has important theory significance andpolicy reference for achieving the anti-inflation target and the macroeconomicdevelopment of stability and healthy development.This paper firstly reviews and summarizes related researches from domestic andforeign scholars; then discussed the traditional theory of “PPP”, new theory of the relationof price and exchange rate, the channel of RBM exchange rate effected on domestic price;thirdly, analysis on the history of RMB exchange rate changes system, the present situationof RMB exchange rate and domestic prices, the contrasted trend between the RMBexchange rate and prices; fourthly we try to analysis and explain the mysteries. We findthat this result is caused by Balassa-Samuelson effect, double imbalance of both at homeand abroad, and the China’s irrational foreign economic policy; in the fifth part, the paperselected monthly data since July2005when begun to exchange the rate to December2013,researched the relationship between the RMB exchange rate and the domestic price, thenselected the Import Price Index (IPI), the Producer Price Index (PPI) and Consumer Price Index (CPI) as a measure of domestic prices. At the same time, the paper also selectedother four factors: the index of PMI product, PMI order index, money supply and interbankrate, then established VAR model, Impulse response, Cointegration test, Error correctionmodel and Variance decomposition to study of the RMB exchange rate effects on domesticprices; finally, the paper gave some corresponding policy recommendations based onempirical analysis: our government should strengthen the flexibility of the exchange rateand gradually promote the internationalization of RMB. Furthermore, we should adjust theforeign exchange reserve structure and foreign trade policy reasonable. We should alsoexpand domestic demand to maintain the internal and external balance of Chineseeconomy in the medium and long term. At the same time, the government should continueto maintain the prudent monetary policy.