A Study On The Effects Of RMB Exchange Rate Change On The Inflation In China

In an open economy, exchange rate change has important effects on inflation in one country. This dissertation refers to the structure of the framework of theory model and VAR model. After the unit root test, co integration test,Granger causality test, impulse response function and variance decomposition, carries on the comprehensive analysis on the influence of RMB exchange rate to inflation in China respectively from imports goods price channel and hot money channel.The results of the imports goods channels analysis about the influence of RMB exchange rate to inflation in China show that:RMB nominal effective exchange rate is negatively related to imports price and consumer price, imports good price is positively related to consumer price; The effect of RMB nominal effective exchange rate pass-through on domestic price is not completely and has certain delay. The transfer rate of RMB nominal effective exchange rate pass-through on imports good price is more than on consumer price.Therefore, there is certain effect of the appreciation of RMB to current inflation in China, but the effect is limited.The results of the hot money channels analysis about the influence of RMB exchange rate to inflation in China show that:the effect of RMB nominal effective exchange rate to hot money and money supply is positive, that is the appreciation of RMB will attract hot money inflowing; The effect of hot money inflows to money supply. asset price and consumer price is positive, this suggests that hot money inflows lead to the central bank issue currency passively, then drive asset price and commodity price up.However,the effect of hot money to money supply. asset price and commodity price is limited; The effect of asset price to consumer price is positive, this suggests that asset price will drive commodity price up through wealth effect channel to produce inflation.Therefore, the appreciation of RMB promotes the inflation through hot money channel, this explains the reason that RMB is rising continuously, but the price level is still high. However, the inhibition effect of RMB exchange rate to inflation through imports goods channels is greater than the promoting effect through hot money channels in the long term.To sum up, there is certain inhibition effect of the appreciation of RMB to inflation through imports goods price channel, but the transfer effect is not complete and relatively low. Hot money inflows into China through various channels in context of RMB appreciation. It aggrated the liquidity surplus of our country in context of surplus and loose monetary policy,then lead to the coexist situation of the appreciation of RMB and inflation.On the base of empirical research,the dissertation provides some relevant policy and suggestions:Firstly, should use monetary policy means to curb inflation; Secondly, in the short term, should keep RMB stable;Thirdly,should establish relevant hot money warning countermeasures;Fourthly,should improve the RMB exchange rate formation mechanism; Fifthly, establish modern sense managed floating exchange rate system in line with international practice.