| Exchange rate, as two countries’ currencies nominal price parity, plays an important role in open economies, by affecting the relative prices of tradable goods and domestic prices. Exchange rate pass-through effect refers to how much the movements of exchange rate will affect prices of tradable goods. Scholars offered different explanations to demonstrate incomplete exchange rate pass-through. Early scholars thought that exporter was pricing to market by adjusting the markup to moderate export prices. Since July 21st,2005, People’s Bank of China announced that RMB exchange rate regime turned to managed exchange rate regime, based on a basket of foreign currencies, and RMB exchange rate is becoming more and more flexible and RMB nominal effective exchange rate has appreciated 12.3% by March,2010. According to economic theory,if the law of one price held for tradable goods, exchange rate pass-through would be complete, but empirical studies showed that pass-through was incomplete and lagged. Farm exports prices is an important factor for agricultural foreign trade in opening economy. With the expansion of the degree we open to the outside world, the influences that exchange rate brings to the farm export prices will also be deepened. Facts show that farm export prices is rising along with RMB exchange rate appreciation, e.g., the average export price of corn has risen by 121.6% in USD terms from USD 287.70 per ton on October 31st,2008 to USD 129.80 per ton on May 31st,2005.Generally, when the exchange rate appreciates, prices of export goods will raise and exports are declining. Therefore, we are wondering that RMB exchange rate pass-through to export prices of agricultural products is complete or incomplete? Does the appreciation of RMB lead to the climbing prices of agricultural products? Is there the behavior of pricing to market for exporters on our agricultural exports markets? Based on summation of relevant theories, using data since 2005, this paper focuses on empirically studying the effect of exchange rate pass-through to exports prices and policy purposes, by presenting a model of exchange rate pass-through to agricultural exports prices. The structure of this paper is organized as the following:The first part introduces the concepts, theoretical background and empirical evidences of exchange rate pass-through to export prices; The second part presents the correlated theories about exchange rate pass-through. This section first presents existing theoretical studies about what factors causes incomplete exchange rate pass-through, and then gives a simple analysis of exchange rate pass-through mechanism; The third part introduces our agricultural exports with foreign trade、major exports markets、composition of exporters and so on; The fourth part presents the empirical framework and discusses the results. Based on correlated theories and methods of unit value of price index, this part firstly structures exports price index of agricultural products and uses relevant quarter data since 2005, to test the pass-through effects of RMB nominal effective exchange rate to agricultural exports prices. The empirical part uses Co-integration tests, Granger Causality tests and Error Correction Model to test the long-term pass-through elasticity and short-term elasticity; The last part is conclusions and policy advices. The empirical tests show that exchange rate pass-through effect is incomplete with a very low level, and then draws some advices: exporters should improve competition ability, get supports and preferential policy from government and realize the importance of independent brand. |
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