| Since the exchange rate system reform in China, the RMB has appreciated sharply. The volatility of RMB was also increased. However, the price of trade commodity was stable, the trade surplus has not significantly reduced, the domestic price level did not show a downward trend and domestic output growth declined slightly. As exchange rate is completely pass-through, economic theory can't explain the above phenomenon. In response to these phenomena, this paper presents the following four research questions:(1) what kind of time-varying characteristics are there in incomplete exchange rate pass-through on trade commodity price?(2) What kind of impact is there in incomplete the RMB exchange rate pass-through on China's trade balances?(3) Does the non-linear characteristics presence in RMB exchange rate incomplete pass-through on the CPI change?(4) What kind of impact is there in RMB exchange rate incomplet pass-through on output volatility of China? This paper set up a dynamic general equilibrium model, and employs the time-varying parameters VAR model, smooth transition regression model to conduct in-depth theoretical arguments and empirical analysis on the above issues. The main conclusions of this paper are including four aspects.(1) The RMB exchange rate is incomplete pass-through on the trade commodity price change. This incomplete exchange rate pass-through affected by the manufacturers marginal cost, vendor pricing behavior and other factors. Change characteristics of RMB exchange rate, China's trade commodity structure and price indicate that the RMB exchange rate showed a greater fluctuation during China's implementation of the exchange rate market-oriented reforms and economic crisis. The growth rate of China's import and export goods volume of industrial manufactured products is higher than the growth rate of import and export volume of primary products. The price volatility of import and export primary commodities is greater than the price volatility of import and export industrial manufactured products. Empirical studies have shown that there was obvious downward trend of the RMB exchange rate incomplete pass-through on the trade commodity price.(2) The impact mechanism of exchange rate incomplete pass-through on the trade balance affected by the exchange rate elasticity of export goods price, the exchange rate elasticity of import goods price, the exchange rate elasticity of demand of trade commodity. Change characteristics of the amount and structure of trade balance indicated that China's trade of primary commodities was in surplus, manufactured products trade was in deficit before1995. After1995, this situation was reversed. In trade deficit of the primary products, non-food raw materials merchandise trade deficit takes a larger proportion. In surplus of industrial products, light industrial products, machinery, transport equipment trade surplus takes a larger proportion. Empirical studies have shown that there are stable cointegration relationship between real effective exchange rate and the Sino-US trade balance, Hong Kong trade balance. There is unstable cointegration relationship between real effective exchange rate and China-EU trade balance, the Sino-Japanese trade balance. Positive impulse of real effective exchange rate lead to trade balance slow decline and then converge to the horizontal axis.(3) The mechanism of exchange rate incomplete pass-through on the CPI affected by the price elasticity of demand of trade goods, the price elasticity of demand of non-trade goods, the elasticity of substitution between tradable and non-tradable, the share of domestic manufacturers of tradable goods in the domestic consumer goods, distribution profits and the demand of domestic manufacturers on imported factors of production. China's trade commodity price index change characteristics indicate that China imported commodity price index growth rate is higher than the growth rate of the export commodity price index. The growth rate of the primary import and export commodity price index is higher than the growth rate of finished industrial products import and export commodity price index. Empirical analysis showed that the non-linear characteristics existed in the RMB exchange rate incomplete pass-through on domestic consumer price index.(4) The mechanism of exchange rate incomplete pass-through on the fluctuation of domestic output affected by the probability of domestic manufacturers adjusting the import and export commodity prices. The smaller the probability of domestic manufacturers to adjust the import and export commodity prices, the impact of the U.S. monetary policy shocks on domestic output fluctuations will be smaller. The greater the degree of RMB exchange rate incomplete pass-through is, the smaller the impact of U.S. monetary policy shocks on fluctuation of output and domestic consumption is. The impact of RMB exchange rate incomplete pass-through on price of import goods on output fluctuation is bigger than the impact of RMB exchange rate incomplete pass-through on price of export goods on output fluctuation.To study further expand, follow-up study prospects are include several aspects. In the analysis of the RMB exchange rate incomplete pass-through on trade commodity price, we can be further exploring the reasons for the decline of RMB exchange rate incomplete pass-through on trade commodity price. In the analysis of the impact of RMB exchange rate incomplete pass-through on trade balance, we can employ the dynamic panel model to explore the fixed effects and random effects of the impact of RMB exchange rate incomplete pass-through on trade balance. In the analysis of the impact of RMB exchange rate incomplete pass-through on inflation, we can be further exploring the theoretical explanation of nonlinear features. In the analysis of the impact of RMB exchange rate incomplete pass-through on output fluctuation, we can explore the welfare impact on China's economy. |
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