Asymmetric Pricing Mechanism And The Real Exchange Rate

Against the backdrop of economic integration, economic exchanges between countries become more expanded. As one of the most important unit of account in the fields of international finance and international trade, exchange rate has captured increasing attention. That’s is why exchange rate determination theory has been a focal point of many economics and therefore many relevant exchange rate determination theories which are full of theoretical values are taken place. Among these, the Redux model written by Obstfeld and Rogoff, first published in the "Exchange rate dynamics redux" has since becomes a standard starting point for many open economy macroeconomics articles. One of the research areas is focusing on analyzing the RMB exchange rate and economic growth in respect of the producers.At the beginning, the author makes a profound analysis on the exchange rate determination theories especially their statistical analysis. Then based on the model focusing on the productivity, the author introduces the asymmetric pricing mechanism into the model. Solving the equilibrium in the steady state, the author understands the relationships between the productivity, asymmetric pricing mechanism and exchange rate. It is concluded by positive analysis that apart from the Chinese economy, RMB exchange rate is also affected by the U.S. economy. From the empirical results, we can also find that the model is feasible. Finally, through a simple numerical analysis, we can tell asymmetric pricing mechanism would likely to exacerbate exchange rate fluctuations. Therefore, China should actively promote the internationalization of the RMB and control the impact of dollar standard.