The Impact Of RMB Exchange Rate Change On Domestic Prices

Since the Breton Woods regime disassembly, the world currency regime has entered the floating rate era. In foreign exchange rate market, exchange rate fluctuation becomes the constant state characteristic.With the economic globalization, exchange rate movements have an significant impact on the health of economy. Now the relationship between exchange rate and price has become the focus of the international economic field. The traditional macroeconomic think that the exchange rate on prices is fully passed. However, after a large number of empirical tests, economists found many conflicts constantly with traditional economic theories. They put forward the incomplete pass-through theory, that the exchange rate is non100%passing on imported goods and domestic general price.In general, a country’s currency appreciation helps to reduce the domestic price level, and this, many domestic researchers have said on different occasions, should regard the appreciation of the RMB as important means to curb prices generally rise. But in practice, there are many delivery mechanism of the exchange rate on prices, different delivery mechanisms have different conduction characteristics, So how is the actual impact of the RMB exchange rate changes on prices, the answer to this question will help to correctly predict the future price level, to provide theoretical guidance for the appropriate exchange rate policy and monetary policy for the central bank system.This paper first reviews the domestic and foreign exchange rate incomlete pass-through theory as well as domestic and international empirical studies, From the theoretical model, a different exchange rate transmission mechanism on the basis of existing literature,the paper analyze exchange rate pass-through prices. Thirdly, the paper summarizes our different formation mechanism of the RMB exchange rate system,descriptive analyze the different stages of the price level in China and the RMB exchange rate changes. Fourth, the use of VAR and VEC model, the empirical analysis of the impact of exchange rate changes on domestic prices. Finally, provide the appropriate policy recommendations.