Incomplete Exchange Rate Pass-through And Demonstration Analysis

Following the economic globalization, foreign trade has playing a more and more important role in our economic world. Because it is helpful for us to promote economic growth, make effective allocation of resources, bring in advanced technology and equipment. And exchange rate is an important synthetical index, which has the function of price switch, just like a lever. The research in the effect of exchange rate changes has been developed all over the world.The trade friction between China and the other countries has been upgraded since 1994. And for this reason our government began to innovate in exchange rate system at Jul.21st 2005. The innovation is lasting more than two years by now. Although the increasing of currency value (against U.S. dollar) reaches almost 10%, the favourable balance is not reduced. On the Contrary, our reserve for foreign exchange is keepingexpanding. Therefore, a series of questions come out-Should the currency value beincreased more? Why is our large favourable balance not reduced after the increasing of currency value? What is the real effect? How can we face the request of the currency value increasing? All of these questions need to be solved.This paper is constituted by five main parts. The first part introduces some correlated theories about exchange rate pass-through as well as the regulation of imports and exports; The second part tries to find the factors of incomplete exchange rate pass-through; The third part analysis on incomplete RMB exchange rate pass-through according to different periods; The fourth part adopts analysis method of econometrics and statistics, selects given practical data and samples, aims at "How the RMB' s nominal effective exchange rate influences our country' s crude oil import", then draws relevant conclusions; The last part makes three policy suggestions according to above analysis: First, it is better for the government to take incomplete exchange rate pass-through into serious consideration. Second, the government should pay more attention to long term goals of economic developing, and pull enterprises through this innovation period. Third, the import and export enterprises should improve their competitive power and the ability of pricing to market.