Transmission Mechanism For RMB Exchange Rate Movements On Export Commodity Prices And Its Implication For Policy

As two important economic variables in a open economy,exchange rate and commodity prices has a complex relationship. The relationship between exchange rates and prices on the discussions and research are constantly evolving. With the wave of global economic integration, deepening and openness of national economies to strengthen, the inter-relationship between boths has become more significant impact to the country's economy. Since July 2005 the RMB exchange rate formation mechanism reform more than five years, appreciation of the RMB become an important component of the economic and people's life. With the expansion rate of appreciation, if the exchange rate changes would be a significant impact to the price level of exports stability became the focus of discussion. Firstly, we description the china's foreign trade and then discuss china and the US trade. With the research theory at domestic and abroad, deep descries to the export commodity prices pass-through theory. At the same time analysis of the RMB exchange rate movements on export prices of the transmission mechanism, proposed hypotheses. We use the monthly date form the 2003 december to 2010 december, construct the export price index in five major sectors, and then construct the lag model to the exchange rate pass-through theory. Use the Johansen cointegration test to estimate the relationship between exchange rate changes and export prices in long term. Using error correction model for short-term deviation from the long-run equilibrium adjustment effects, Pulse response function and variance decomposition analysis of exchange rate movements on export prices caused by the dynamic relationship between long and short term, Finally, the autoregressive distributed lag model given the specific short and long term flexibility in exchange rate pass.The results can be drawn from the empirical analysis in the 5% significance level, export commodity prices and the nominal effective exchange rate, export manufacturers cost of production, the level of foreign demand, competition exists between the price level of a balanced long-term cointegration relationship. And different industries are not as long-term cointegration relationship, in which the RMB exchange rate movements on export prices of plastic products, the transmission effect of 0.246, Other products such as fur, leather products, steel, paper products pass effects were 0.637,0.873,0.527.0.292. The transfer effects are not fully passed all. However, fur and leather products has a higher pass effect. This also explains the labor-intensive industries in the face of the price of exchange rate movements caused by the negative impact will be greater. Technology-intensive and capital-intensive industries such as plastics and steel has a lower pass effect. at the same time from cointegration relationship can also be seen, The impact from production costs and foreign demand and competition for commodity export prices are also high. In addition, the impulse response function and variance decomposition results can be obtained, exchange rate movements to the export prices have a less flexibility of short-term delivery, but in different industries shows different long-term delivery flexibility. After use the Autoregressive distributed lag model by the export price and other factors we can seen, different commodities export prices has the difference flexibility in exchange rate pass.Finally, according to the theoretical and empirical result, With the current situation and abroad, Proposed response to the pressure of RMB appreciation recommendations, And the major export sectors respond to long-term measures of exchange rate changes, And the status quo of the domestic monetary policy RMB appreciation of alternative policies.