Money Growth In The Exchange Rate Pass

Price is the internal value of a currency, and exchange rate external value. Exchange rate pass-through studies the extent to which the external value change affects the internal value change, and how fast the speed is, and has grown to be a hot topic in international economics. The monetary change is at the roots of economic change, monetary growth will lead to changes in both price and exchange rate. Under floating exchange rate regime, the impact on the domestic price of exchange rate change results from monetary factors and real factors.This thesis comprises five chapters, each with a different focus. The first two chapters concentrate on monetary analysis, and the next two chapters combine monetary and real analysis, the last chapter put the above theories and analyses into practice in the Chinese economic context.Chapter 1 explores price dynamics in monetary growth. After analyzing the dynamic change in monetary supply, it presents a simple model to consider the optimal monetary supply in less-developed countries. As Mckinnon(1973) pointed out, most of the developing countries are depressed far from the optimal monetization point, which highlights the importance of monetary reform in helping economy on the effective monetary expansion path.Money determines the change in nominal and real national income, and the feature of monetary economy lies in expectation uncertainty. In a world full of uncertainty, money is important in bridging the present and the future.The direct effect of monetary expansion is to lower nominal interest rate, and demand and cost pressures that ensue will push future price level upwards. Under the assumption of nominal supply of base money as the official policy means, Bruno and Fischer (1990) presented a model explaining monetary growth and inflation.Chapter 2 discusses the exchange adjustment caused by monetary growth in the framework of exchange rate determination theories, which...