The Empirical Study Of The Nonlinear Effects Between The Renminbi Exchange Rate And CPI Based On STR Model

The traditional international economic theory suggests that the changes ofexchange rate may cause changes adversely.But in fact,many studies have indicatedthat there exist incomplete pass between the exchange rate and one country’s pricelevel.This reform of Renminbi exchange rate system in2005has significant impacton China’s economy.Since then,The Renminbi rose over30%against the dollar.Thechanges of Renminbi have a profound impact on our country’s price level、economicgrowth、employment and the balance of payments.Therefore the study of exchangerate changes’ impact on domestic price level has important significance,it is good forguiding China to confirm monetary policy to maintain growth of exports andeconomic,curb inflation.This article first analyzed the development and current situation of Renminbiand CPI, and described the related transfer theory. Using both theoretical analysis、descriptive data analysis and empirical analysis to study on this question.Based on thedescriptive analysis of the related data during1994to2013, we know that the changetrend and characteristics between Renminbi and CPI.This paper use the quarterly datafrom January1994to June2013to estimate the nonlinear effects between theRenminbi nominal effective exchange rate and CPI based on STR model.The STRmodel shows that,during this period,between the Renminbi nominal effectiveexchange rate and CPI there is a significant asymmetry,with highly non-linearcharacteristics.Between them lies the dynamics of regime switching.In the regime ofhigh inflation period,the effect that the Renminbi nominal effective exchange rate toCPI is intensified;in the regime of In a relatively stable and low inflation,the effectthat the Renminbi nominal effective exchange rate to CPI is weaken relatively.Based on the above research results, this paper puts forward some policySuggestions according to the specific situations,adjust exchange rate,moderatelyamplify the range of exchange rates floating,complete Renminbi exchange rateregime.Our country’s current monetary policy can be pegged to the Taylor rule ofmonetary policy of inflation.