The Empirical Study On The RMB Exchange Rate Changes Impact On Prices In China

Exchange rate transfer effect refers to the exchange rate change on the influence of the domestic price level. So how the change of exchange rate affect the domestic price of direction and at what level? Does the change of exchange rate system have any influence on the transfer effect? This paper mainly studies the transfer effect of RMB exchange rate on domestic prices.China's monetary policy's goal is to stabilize the currency, and thereby promote economic growth. So the inflation is the fundamental standpoint of the implementation of monetary policy in our country. Numerous studies have shown that the appreciation of the RMB has the effect of inhibition of domestic prices, but the RMB exchange rate and price level in China often appear the phenomenon of concurrence. To achieve the goal of monetary policy, studying of the transfer effect of the exchange rate is of great significance .This paper firstly combed the price transmission mechanism of related literature at home and abroad, and then analyze the theory of exchange rate price transmission mechanism and complete and incomplete transfer theory, and then analyzes the exchange rate transmission path on prices. Then analyze the correlation of the RMB exchange rate and domestic prices and its possible transmission mechanism. On empirical research we use CPI and PPI indicators to represent domestic prices, based on time series, we use VAR model to analyze the transmission effects on prices of RMB exchange rate. Finally, based on the empirical results in this paper, the governance of our country domestic inflation and the RMB exchange rate system reform and the further research direction are proposed.Through the research to the two aspects of theory and empirical research, this article get the conclusion:the article transfer effect of RMB exchange rate is not completely, but denominated in nominal effective exchange rate on domestic prices of transfer effect is very small,the appreciation of the RMB is not effective way to fight inflation. Different prices in the chain on the impact degree of the impulse response of different exchange rate,exchange rate changes has more significant negative effects to the import price index, and the exchange rate changes to domestic producer price index and the impact of consumer price index is smaller; Money supply is the main factor affecting the price. In the economic situation in China, combined with empirical research this paper draws the conclusion, puts forward the suggestions of governance inflation and improve the RMB exchange rate formation mechanism reform .