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The Analysis Of The RMB Exchange Rate Pass-Through Effect On The PPI

Posted on:2010-11-09Degree:MasterType:Thesis
Country:ChinaCandidate:T C HuangFull Text:PDF
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July 21, 2005, the PBC announced that the RMB appreciated 2%, the RMB exchange rate system is no longer pegged to the dollar, but the managed floating exchange rate system on the basis of market supply and demand with reference to a basket of currencies. Since then, the RMB exchange rate bid farewell to a 10-year fixed exchange rate system into a managed floating exchange rate system. More than four years since the exchange rate reform, exchange rate fluctuations in the economic life has become an important part. With the expansion of the exchange rate volatility, does exchange rate change result in a significant impact on the stability of the domestic price? Companies how to deal with unexpected impact from the exchange rate movements on the development of enterprises? Economists pay attention to these issues and started to the question on the RMB exchange rate and domestic prices.This paper first reviews the researches at domestic and overseas on the Exchange Rate Pass-Through, followed systematically analyzing and summarizing the principle of Exchange Rate Pass-Through by the use of basic theories of finance and international economics. On this basis, this paper used January relevant data of 2002-December 2008 to research on the transmission mechanism and its effects of RMB exchange rate movements on the PPI. By use of comparative analysis, making a classified study on the effect of the exchange rates on the three types of index of import prices, arguing the impact of the reform of RMB exchange rate to the Exchange Rate Pass-Through. In the quantitative research process, this paper used a linear regression model to analyze the transmission of the exchange rates on import prices and Vector Error Correction Model to analyze the transmission of import prices on the PPI.The results show that: The transfer rate of the time before the reform of the RMB exchange rate system are higher than the rate after the reform for all the three types of import price. The long-term transfer rate of the exchange rate on import prices of all three types is higher than the rate of short-term one. The empirical results of the three types of import price index reflect the rate of exchange rates on import prices showed a downward trend. The transfer rate of exchange rate on imports of primary products and raw material prices is the lowest, while the transfer rate of the import prices of manufactured goods is the highest. Import price fluctuations on the impact of PPI have lag periods, and this effect is in favor of long-term.Compared with other similar studies, this paper based on a more distinct analytical framework and followed from the general to the specific analysis of logic. In the step of the data selection, producing three types of import price index in order to highlight the impact of exchange rate on the different types of import prices. In empirical studies, dividing the date sample into two phases based on the reforming of exchange rate system. The conclusions of the study have some theoretical and practical value.
Keywords/Search Tags:Exchange Rate, Producer Price Index, Co-integration Test, Vector Error Correction Model, Granger-causality Test
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