Empirical Analysis Of The Impact Of Rmb Exchange Rate Volatility To Domestic Prices

Since the RMB exchange rate system reform in2005July, our country long-standingthe coexisting conditions that external appreciation of RMB and internal depreciation ofRMB, this conditions conflict with the international economic theory which give theconclusion that inflation will cause a country’s currency devaluation. The coexistingconditions that external appreciation of RMB and internal depreciation of RMB attractedthe attention of many researchers. Some researchers believe that the appreciation of theRMB is conducive to curb inflation, some researchers even believe that the rapidappreciation of RMB is the only way to solve our country’s inflation. In contrary, otherresearchers concluded that the appreciation of the RMB has little affect to curb inflation,some researchers believe that the appreciation of RMB would cause internationalspeculative capital influx, international speculative capital would causes excess domesticliquidity, thereby boosting domestic inflation. I believe that in-depth study to the coexistingconditions that external appreciation of RMB and internal depreciation of RMB, and thestudy to the impact of the RMB exchange rate changes on domestic prices, will help us todeepen understanding of international economic relations, and have a certain reference tothe formulation of national economic policies.This paper first introduces the research status of the impact that exchange rate changeson prices, followed by the theory and the affect path that the impact of exchange ratechanges on prices through the channels of international trade and international speculativecapital. Then use the Cointegration Test、Error Correction Model、Granger CausalityAnalysis、Impulse Response Functions、Variance Decomposition Analysis to study theimpact of exchange rate changes on prices through the channels of international trade andinternational speculative capital, revealing the long-run equilibrium relationship andGranger causality among economic variables, give the degree of influence that volatility ofa economic variable by the changes of other economic variables. Finally, give this paper’sconclusions and inspirations. The main work of this paper is to analyze the impact of the RMB exchange ratechanges on domestic prices from both the aspect of international trade and the aspect ofinternational speculative capital. Through the empirical analysis, I find that the appreciationof the RMB can not effectively curb inflation in the sample period. On the one hand, theappreciation of the RMB could curb inflation, but on the other hand, the appreciation of theRMB could boost inflation, and the conduction effect of the two effects is poor, the impactof RMB appreciation on price depending on the specific economic situation, and the impactis very small, changes in the price level is mainly affected by people’s inflation expectations.I found that the appreciation of RMB is not the most important reason which attractinternational speculative capital inflows, but they influence each other mutually andpromote each other. In addition, I introduced the formula which I calculated in Chapter III,with this formula, we can compute fixed base data by year-on-year data and some ring data.With an emphasis in Chapter IV, I computed the monthly inflows of internationalspeculative capital by more scientific method.This paper has two innovations. The first innovation is that I analyzed the impact of theRMB exchange rate changes on domestic prices from both the aspect of international tradeand the aspect of international speculative capital; the second innovation is that I computedthe monthly inflows of international speculative capital by more scientific method and usedit in the empirical analysis.