The Impact Of RMB Exchange Rate’s Changes On Domestic Price

In recent years, with the gradual progress of economic globalization, the exchange rate and domestic prices as two important economic variables in an open economy, the changes and interactions of them also significantly influenced the countries’economy.The traditional principles of economics show that on the one hand RMB appreciation can ease the pressure of central bank on the currency because of foreign exchange inflowing,on the other hand, it can control the prices in the international market,lower domestic prices of imports and ease the pressure on domestic inflation. Therefore, many officials and scholars believe that the appreciation of RMB acts as an important means of curbing inflation.But in practice, there are many mechanisms of exchange rate on prices,and different mechanisms have their respective conduction paths and conduction velocity.Over the years, the RMB exchange rate has repeatedly become the focus of world attention, the reform of the RMB exchange rate system has also become a top priority in the economic reform process. In view of this, the article looks at the trend of the current trend of RMB appreciation.Based on the internal mechanism of the exchange rate on the price level, the article focuses on the conduction path and manner of the impact of the RMB exchange rate changes on the price level in China.And then select the data that first quarter of1995to the fourth quarter of2011,using a VAR model to test the impact of RMB appreciation to price level in the long-term and short-term in China.Thus it tests that the appreciation of RMB can play a role of inhibition to domestic inflation.Co-integration tests analysis the long-term relationship of these economic variables,and come to the conclusion that the effect of nominal effective exchange rate on domestic prices is not significant.The transmission of exchange rate changes on domestic prices is incomplete,and it was a negative correlation between the domestic price and the change of exchange rate.Exchange rate increased by1unit, domestic prices will reduce0.040289units in the long term.It is that appreciation of RMB can control the domestic price pressures to a certain extent in the long term.The use of the vector from the regression model, impulse response and variance decomposition can obtained that the impact of nominal effective exchange rate on domestic prices is not very significant in the short term.And there is a lag period, which become apparent after two quarters. These analyzes have positive significance in theory and practice.In a detailed,these analyzes can provide a reference to China’s exchange rate policy, monetary policy adjustment, price stability,as well as China’s inflation.