Researching On The Exchange Rate Pass-through Of RMB’s Fluctuation To Export Price

In2013, the gross domestic product (GDP) of China was56.8845trillion yuan, and total volume of foreign trade was$4.16trillion. That is to say, the foreign trade dependence degree was above40%. The steady development of foreign trade, especially the export, has important significance in ensuring employment and achieving reasonable economic growth. As a very important economic variable in the macro economic, exchange rate have far-reaching impact on export. The RMB exchange rate changes can directly affect the relative prices of Chinese export products, thus influence its competitive advantage in the international market, and even the healthy development of the whole export department.In this paper, on the basis of predecessors’ research, a researching model was built, from microscopic views, to study the pricing behavior of export enterprises that choose cost-plus strategy in an imperfect competitive market. Thus, the relations among export price, exchange rate and cost of product can be obtained. In order to further study the incomplete exchange rate pass-though and asymmetry transmission, Blanchard-Quah decomposition method was used to get persistent exchange rate fluctuations and temporary ones. Then, empirical analysis was implemented using China’s export prices data from January1997to December2012, by VEC model. Also, empirical research was carried on in top ten export sectors of HS classification, so that, we can examine the impacts of persistence and temporary exchange rate fluctuations on different industries.The empirical results show that the change of the real economy will cause the persistent exchange rate changes, while monetary policy and financial market disturbance can cause the temporary ones. These two kinds of exchange rate changes have different transmission effect on China’s export prices. In practical terms, the transfer coefficients of persistent and temporary changes of real effective exchange to China’s export prices are0.84and0.67respectively. In sector level, empirical analysis of the top ten industries of HS classification shows that, the incomplete transmission phenomenon exists in most industries. The differences among the transmission coefficients of the top ten sectors are significant. Specially, the prices of some export industries almost face completely exchange rate transmission; the prices of some other export industries are not affected by the exchange rate at all; and most industries are in between. This is mainly determined by the export enterprise’s international competitiveness. That is to say, the stronger capacity an export enterprise has in Pricing-To-Market(PTM), the less the export price is affected by exchange rate fluctuations.In short, the PTM capacity of China’s export enterprises is still relatively weak, so both the persistent and temporary exchange rate fluctuations have significant influences on export prices. As we know, the persistent exchange rate fluctuations mainly arises from the change of the real economy, and temporary fluctuations are mainly produced by the change of financial market and monetary policy. Therefore, in order to reduce the effects of exchange rate volatility on China’s export prices, we have to speed up the transformation and upgrade of the export sector to improve its international competitiveness on the one hand, and maintain the stability of the financial market and monetary policy, on the other hand.