| According to the theory of "law of one price", domestic and foreign currencywill bring down the price level price when a country’s exchange rate rises. But, after the exchange rate reform in our country in 2004, the phenomenon of inflation and currency appreciation appeared in China, which conflicts with "law of one price ". What is the reason caused the result, and what is the relationship between exchange rate and price level? This paper tries to answer these questions, hopes to be able tocoordinate exchange rates and prices as well as provide valuable reference about inflation for governance.The basic definition and the theory of exchange rate pass-through and its development courseare introduced in this paper.Accordingto previous research results, purchasing power parity theory, balassa-samuelson theory and high savings dilemma theory and exchange rate theory of incomplete transmission are summarized and presented in the paper; Then trend of RMB exchange rate from new China to the present is analyzed, as well as the exchange rate system and characteristics in different periods; At the same time, the comparative analysis of the three times of inflation since 1980 s, and inflation reason of each time performance and characteristics, preliminary studied since the founding of new China, price movements and the main factors driving prices generally rise are analyzed. Later, in this paper, empirical analysis onthe effect of nominal effective exchange rate to inflation are made by using Autoregressive Distribute Lag Model(ADL), in which data from July 2005 to December 2015 monthly usedin order to found the relationship between the two variables and the influence degree. Finally, in view of the empirical analysis, the corresponding policiesarerecommended. |
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