The Theoretical And Empirical Analysis Of The Effect Of RMB Exchange Rate Fluctuations On Domestic Prices

In recent years,the expectation of RMB appreciation is getting stronger as the reform of RMB exchange rate advances.To estimate the extent to which home currency appreciation can influence the domestic prices is referential for the regulatory authority to push forward the exchange rate reform and maintain price stability.Taking the relation between the exchange rate and prices as a starting point,this paper analyzes direct and indirect effects of exchange rate pass-through.Moreover,this paper innovatively studies the crowding-out effect using money supply as intermediate variable.On that basis,this paper makes an empirical study on the three effects of the exchange rate to price by adopting VAR model and linear regression model.The empirical study shows that the direct effects of exchange rate to price can be passed through effectively in China,yet the indirect effect is not significant.Meanwhile,the crowding out effect begins to play a more important part in the recent stage.RMB appreciation causes capital inflows thus accelerates domestic liquidity,resulting in crowding out the mitigation effects of exchange rate appreciation.