Empirical Analysis Of Rmb Nominal Effective Exchange Rate Of Deflation Impact

Since the reform and opening up, our country has experienced a period of highly speedy economic growth for 20 years. In the meantime, we have affronted high inflation four times successively, accumulated abundant experience during the process of coping with them repeat, and successfully realized "soft-land" of the macro economy for the fist time. However, the newly-formed situation of "high growth, low inflation" has soon felled into a situation of deflation, which becomes a significant economic problem that have to be faced with during China's economic reform and development. It draws extraordinary attention from academic circle and research work from a large quantity of researching staff.The deflation in our country appears after Asian financial crisis, which should make people think of the policy of exchange rate that our government adopted in the crisis, that is, insisting upon the exchange rate of RMB not be devalued. This policy at that time played a crucial role in stabilizing Asian economy and recitalizing the productivity of the Asian countries. However, everything has two sides, and the policy we adopted is no exception. It results in RMB exchange rate in fact comparatively appreciating in other Asian countries and later on restricting our export and decreasing export volume on a large scale. Although the government adopted the proactive policy of expanding domestic demand, it still affected the economic growth rate of our country.This thesis uses the method of the weighting of the trading volume to construct the nominal effective exchange rate of RMB at first, then converts the consumer price index to the fixing base consumer price index taking January of 2000 as base period. This is in order to discover the cointegration relation between the nominal effective exchange rate of RMB and the fixing base consumer price index, and to find out how much the exchange rate impacts on the forming processof deflation. The thesis adopts the vector error correct model and makes the price equation referring to Corbo and McNelis's half-open economy model, choosing the relevant variables like money supply, loaning rate, etc. The conclusion put forward by this thesis is: Exchange rate and price-level have long-term reverse alteration tendency, so the policy of not devaluing exchange rate (the nominal effective exchange rate appreciating) is really one of factors influencing price falling. However, the influence of exchange rate is not the main factor, in fact, changes of exchange rate becomes the factor of bringing out the deflation of China.