The Rmb Exchange Rate Changes An Empirical Analysis Of The Impact On The Domestic Price Level

Since China’s accession to the WTO, the import and export trade rapidly growth year by year, which bring huge trade surplus and huge foreign exchange reserves for China, therefore RMB exchange rate faces enormous pressure to appreciate. RMB exchange regime has reformed at July21,2005, which make RMB appreciating in a long time. At the same time price has rise too. There is conflict of RMB’S internal value and external value. Therefore, in the context of economic globalization, research on the relationship between the RMB exchange rate and China’s price level has important theoretical and practical significance.Firstly, the article discusses the theory of exchange rate and prices. Secondly, The article reviewed the evolution of the RMB exchange rate system and Several times of inflation in China. Base on the reviews make basic judgments on the relationship between the RMB exchange rate and price level in China. Subsequent selection of the monthly data from January1996to June2010, using the Granger causality test, co-integration, vector error correction and impulse response method, examined the impact of the RMB exchange rate on the price level in China. The results show that RMB exchange rate changes can cause changes in price level in China; RMB exchange rate pass-through effect is incompletely, in the short term, RMB appreciation the will push the consumer price index to rise, in long term appreciation of the RMB can curb demotic inflation, but the effect has a time lag. The effect of RMB appreciation restrain PPI is more obvious than CPI. Finally, according to the empirical results, this paper argues that government should continue to deepen the reform of the foreign exchange market, In order to curb inflation, the exchange rate policy must combine fiscal and monetary policy.