The International Trade Transmission Mechanism And Test Of China’s Imported Inflation

From2007to2012, prices rose widespreadly on the international market. Both the developedcountries and the emerging market countries are experiencing serious inflation. Against thisbackdrop, from the angle of open economy, explore the relationship between the foreign inflationwith our inflation.This paper analyzes the transmission mechanism of international inflation on the basis ofcombing the international inflation theory: the price, the aggregate demand-aggregate supply andthe trade balance. From the angle of international trade, investigates the effect on China’s inflationcaused by foreign inflation. This paper establishes two vector auto regression models in order totest the effect of commodity prices, net exports and foreign exchange on the CPI, PPI respectivelywith the data of2006-2012. The empirical result indicates that: the aggregate demand-aggregatesupply channel is essentially of no effect, while commodity prices and trade balance channels areeffective during the process which international inflation affects domestic inflation. Specificconclusions are as follows:(1) As the representative variables of international commodity prices,the prices of soybeans, iron ore and crude oil effect on CPI is less than that on PPI.Moreover theeffect of international prices is diminished during the transmission process;(2) Transmission effectof net exports on PPI is not significant, while the impact on the CPI is in the short-term, and thenits explanation of CPI changes is relatively low. Overall, the aggregate demand-aggregate supplyway is basically ineffective;(3)Foreign exchange, representative variable of the trade balanceapproach, contributes to the CPI changes mostly, while contribution to PPI changes is lower thanthat of the commodity price variables, which means that the trade balance way also plays a role inthe transmission process. According to the empirical conclusions, this paper suggeststhat:(1)Increase the domestic supply of agricultural products so as to reduce dependence oninternational agricultural products;(2) Establish and perfect the national strategic resources andenergy reserve system;(3) Strengthen the pricing power and the right of discourse on the bulkcommodities;(4) Improve the efficiency of foreign exchange reserve, and improve and perfect thesterilized intervention policy of foreign exchange reserves.