Research On The Exchange Rate Pass-through To Export Prices

Since the new round of RMB exchange rate regime reform announced by Chinese People’s Bank of China in July2005, the volatility of RMB exchange rate increased gradually. At the same time, export trade of china is also increasingly influenced by appreciation of RMB. Overall, currency fluctuation can have a huge impact on china’s export trade, but the degree of influence on different industries will differ.Based on different characteristics of industry, we examine the effects of RMB exchange rate pass-through, which will undoubtedly help to assess the exchange rate movement on different industries and commodity structure of export. It is useful for export enterprises and government departments to deal with exchange rate volatility.Firstly, this paper analyzes three different stage of RMB real effective exchange rate since the reform and opening. Then, we examine the impact of RMB exchange rate on export prices of our country from the positive and negative transmission mechanism.Secondly, EPT directly reflects the degree of influence of currency movements on export prices, while PTM reflects the cost allocation between the exporter and importer. In view of this, this paper analyzes the case of exporters to maximize profits pricing strategy and the relationship of EPT and PTM.Finally, base on HS classification of goods, we select quarterly data of EXP, REER, MC, WGDP and Dum of10export commodities categories from2005to2012. Through building panel data model, we examine the overall and industry transmission degree of RMB exchange rate changes. Thus, we can get the following conclusions from our empirical results:Conclusion One, from overall and industry transmission degree, the pass-through of RMB exchange rate changes is incomplete.Conclusion Two, China’s manufacturing industry average exchange pass-through coefficient is0.25, meaning that1%change in exchange rate will cause the average change in export prices by0.25percentage points.Conclusion Three, the degree of exchange rate pass-through differ in industries, which are mainly affected by trade, market share and incomplete markets.Conclusion Four, this analysis will help to identify competitive advantages of different export industries. Our empirical results show:HS16have superior PTM ability; HS11AND HS12have strong PTM ability; PTM ability of HS6, HS8and HS13is weak.