Research On The Transfer Of RMB Exchange Rate To The Price Level In China

Under the international background of the deepening of economic globalization,exchange rate and the transfer relationship between the price level has been the hot topics in the study of macroeconomics.The traditional macroeconomic theory is that the change of exchange rate will cause narrow direction changes with the price level,and the exchange rate pass-through is completely passed.But the reality is that the exchange rate pass-through in the price level of a country is often incomplete.The Third Plenary Session of the eighteenth CPC Central Committee put forward that our country should further perfect the marketization of RMB exchange rate pass-through formation mechanism.This show that quite a long period of time in the future the reform of the exchange rate system is still the focus of financial reform in our country.Since 2005,after the exchange rate revaluation,our government frequent fluctuations of exchange rate.What is the effect of changes in exchange rates on the transfer of price levels?The study of these issues play an important role in the monetary authorities to further reform on the exchange rate system,macroeconomic regulation.The research of those issues have more signification.This paper first elaborates the exchange rate system and the exchange rate transfer theory since the reform and opening,expounds the exchange rate transfer effect caused by the exchange rate change in theory,then analyzes the direct transfer and indirect transmission mechanism of the RMB exchange rate to the price level.Then,this paper sets up a VAR model in the eastern,central and western regions of China.The impulse response function and variance decomposition are used to analyze the transfer effect of RMB exchange rate on the domestic price level.In the following,we use the two-variable VAR-GARCH(1,1)-BEKK model to analyze the correlation between the RMB effective exchange rate and the price level from the second-order moment.The results show that the RMB effective exchange rate does not completely transfer the price level and the time lag effect,the exchange rate fluctuation level will significantly affect the price level fluctuations,while the price level fluctuations on RMB effective exchange rate volatility is not significant.Finally,according to the results of this study,some policy suggestions are put forward.