A Study On The Impact Of Exchange Rate Misalignment On China's Agricultural Producer Support Estimates

Abstract:Under current international and domestic economic background, the exchange rate is imbalanced to some extent, and there have been different degrees of exchange rate disequilibrium in China. Exchange rate misalignment would lead to the deviation of such agricultural policy indicator-Producer Support Estimates (PSEs), or even change the levels of agricultural support, which may hamper the welfare of agricultural producers. So far, much research has been done in the fields like China agricultural support level, the RMB exchange rate equilibrium model and RMB exchange rate misalignment, but the influence of RMB exchange rate misalignment on China's agricultural support levels has not yet been explored. This dissertation,based on the research of the exchange rate misalignment and China agricultural support level conducted by scholars at home and abroad, constructs an RMB exchange rate equilibrium model and an exchange rate pass-through model to agricultural prices, and systematically analyzes exchange rate pass-through coefficient,the direct,indirect and total effect of government policies on China agriculture support level. Meanwhile, the thesis, on basis of the China's agricultural policy, proposes a suggestion to better the China agriculture support and protection system.First of all, with co-integrated time series method, the dissertation presents an RMB equilibrium exchange rate empirical model in 1978-2007 based on the ERER theory.The model's results demonstrated that: (1)Government spending, contribution rate of production, terms of trade, opening-up scale to the outside world and the growth rate of money supply are the important factors that determine RMB equilibrium exchange rate in the long run; (2) RMB nominal exchange rate has experienced two periods of overvalued and a period of undervalued: in 1980-1993 the nominal exchange rate overvalued seriously, which extent has exceeded 20%;while in 2007 it overvalued slightly ;in 1994-2006 the nominal exchange rate has undervalued slightly.Second, combined with the latest methodology of OECD, the dissertation estimates China's agricultural support level(PSE and %PSE)in 1998-2007. In the sample period China's agricultural support level is generally low and the contribution of China's agricultural policies to the total agriculture income is still in the negative and accounts for a low proportion. Agricultural producers have not been supported or protected by agricultural policies and agricultural products were increasingly suffered from price discrimination by the international market.Third,the dissertation compared the nominal agricultural support level with the nominal exchange rate and real agricultural support level with the real exchange rate. (1)During most of the sample years,the nominal agricultural support level consisted with the real agricultural support level but has numerical differences,and the exchange rate frame has resulted greater discrimination and fewer subsidies to producers.(2)In 1998-2006 the exchange rate policies has subsidied the agriculture while discriminated it in 2007.(3)The exchange rate misalignment extends or offsets the direct effects of agricultural support policies.The deepening of the exchange rate misalignment will significantly increase the indirect effect.Finally using panel data fixed-effects model, the dissertation calculates the exchange rate pass-through coefficient. The results showed that the RMB exchange rate had an incomplete pass-through to domestic agricultural prices,and the pass-through coefficient was 0.61.The indirect effect caused by exchange rate misalignment will significantly decrease than the real agricultural support level when transferred to the equilibrium agricultural support.