An Study Of The Relation Mechanism Between RMB Exchange Rate And Asset Price, Commodity Price

In1970s，Bretton Woods System ended and the exchange rate regime of thewhole world has changed basely, floating exchange rate replacing fixed one, whichmade world’s dominant currency fluctuate frequently. Since reform and opening-up,exchange rate regime in China has experienced the dual exchange rate.In1994,Chinaimplemented the floating exchange rate system that is based on the demand-supplyrelationship in the market. After the day of July21st o,2005, China declared the RMBexchange rate appreciated against US Dollar by2%and floating exchange rate tookthe place of pegged exchange rate. Therefore，the RMB exchange rate regime ismore flexible and the problem of RMB exchange rate Pass-through has attracted moreand more domestic researchers’ attention. From the international experience we cansee that the course of currency appreciation is usually accompanied by the rocketingof asset prices. In fact, since the RMB exchange rate reformed, stock price and houseprice have increased substantially, and the CPI also has risen continuously. In addition,the double surplus of international balance of payments has sustained over many yearsand the pressure on the increase in RMB value would not be decreased. Japan and thecountries in Europe and North America are trying to interfere the RMB exchange ratepolicy. It is of great importance to formulate the right and effective monetary policyand exchange rate policy for policymakers. So studying the relationship among theexchange rate, asset price and price level is of great significance to us.Firstly, the paper introduces the basic theory and transmission mechanism of ofthe relationship of exchange rate and asset price, commodity price, and determines themain research methods. On that basis, this paper makes a revision on the PBM modelin order to analyze the interaction between exchange rate, commodity price, assetprice and money supply under a theoretical frame work. builds the indicator system,including RMB NDF index, Shanghai Composite Index，real estate sellingprice index and M2. In the third part, this paper empirically studied the relationshipamong RMB NDF index, Shanghai Composite Index，real estate selling price indexand M2. The conclusion includes：the change of RMB exchange rate expectation willaffect the asset price and cannot help decrease the inflation rate；there do exits aninteraction between asset prices and commodity prices; the mechanism of moneysupply is a principal factor that affects asset prices. In the end this paper proposesexchange rate policy and monetary policy accordingly.The main innovations of this paper lie in the following two:1. Making a revision on the PBM model and building the indicator system,including RMB NDF index, Shanghai Composite Index，real estate selling price indexand M2.2. Studying the relationship among RMB exchange rate expectation, stock price,house price and commodity price from the money supply perspective...