Empirical Research On The Influence Of RMB Exchange Rate Alteration To Price Of China

After the collapse of the Bretton Woods, fixed exchange rate system have been replaced gradually by floating exchange rate system. The volatility of the world’s major currencies are enhancing continuously, the impact of exchange rate movements on the national economy is growing. Because the influence of the exchange rate changes on the real economy is achieved mainly by affecting a country’s price level, so the exchange rate changes on price’s influence has become a worldwide project.Since2005, China’s exchange rate system reform, the volatility of RMB exchange rate has enhanced. In the international, the calls for appreciation of the RMB exchange rate are endless. As of June12,2012, the RMB relative to the dollar has appreciated30.77%, relative to the euro has appreciated26.46%, the appreciation is obvious. However, along with the appreciation of the RMB exchange rate, China’s CPI is high. How does the appreciation of the RMB exchange rate affect the price of our country? Whether the appreciation of the RMB exchange rate can inhibit price increases in China? The study on these problems has important practical significance for the central bank of our country to correctly predict the price level in the future and take appropriate monetary policy and exchange rate policy to maintain the stability of price level.This article first defined the connotation of exchange rate pass-through, and then analyzed the transmission mechanism of exchange rates on prices in theory, summarized the domestic and foreign scholars’s research on the reasons that lead incomplete exchange pass-through, laid the theoretical foundation for the following empirical study.In empirical research, this paper uses cointegration test and vector error correction model analyzed the influence of RMB exchange rate’s fluctuation on China’s general price level in the long term and short term. In the long run, the pass-through effect of RMB nominal effective exchange rate’s fluctuation to the general level of prices is positive, but the transfer effect is not significant. In the short term, the impact of RMB nominal effective exchange rate to import price index, corporate goods price index and consumer price index are negative. Next, this article studied the dynamic trend of the pass-through effect of RMB exchange rate used the method of recursive least squares, and and found that the pass-through effect of nominal effective exchange rate is low throughout the full study period, most of the time, the transfer effect is around0.2and is rising slow. Then, this article studied the factors which affect the pass-through effect of RMB exchange rate. By study, we found that exchange rate volatility and economic scale are main factors that can affect our country’s exchange rate pass-through effect. At last this paper analyzed the empirical results from price transmission path and made some related policy suggestion.