Empirical Study On The Impact Of Chinese Foreign Exchange Reserve And Exchange Rate On Inflation In China

Great changes have taken place in the international and domestic economic situation since 2005, Internationally, the depreciation of the dollar, the global financial crisis,the global economic imbalances,the debt crisis,the global inflation,the international commodity prices rise rapidly and the economic phenomenon have become the common concern of scholars at home and abroad, With the improvement in the level of internationalization, the influence of change in the international economic environment on China’s economy is gradually improving, Due to the impact of the development model, the phenomenon of appreciation of the RMB exchange rate the trade surplus, foreign exchange reserves and the imported inflation all continued to expand, In order to reduce the trade surplus, liquidity and curb inflation goal, the policy authorities had to take a series of austerity policy, such as, reducing further credits, issuing central bank bills, credit controlled, relaxation of exchange controls, the appreciation of the RMB exchange rate, reducing the proportion of foreign exchange reserves and foreign exchange etc, Inflation has become an important indicator of China’s macro-control, Because of the appreciation of the RMB exchange rate and the reducing of the foreign exchange reserves on the degree of inhibition inflation influenced by many other economic factors, so the effectiveness of the method of exchange rate appreciation and the reduced foreign exchange reserves to curb inflation effect has been questioned, Therefore,this paper focuses on the research of the impact effect of RMB exchange rate changes and the foreign exchange reserves on China’s price, Hope to be able to have some inspiration for China’s price regulation,Based on the data of RMB exchange rate index.foreign exchange reserves,the broad money supply M2,economic growth GDP and consumer price index CPI data between 1978 and 2014, This paper has do research on the relationship from the total amount and structure to prospect the foreign exchange reserves, the effect of exchange rate changes on the impact of china’s price, Main theoretical logic of this paper is:Firstly, proposed exchange rate transmission and foreign exchange reserves channels of influence on prices; Secondly, to build theoretical model between exchange rate, foreign exchange reserves and prices, and to demonstrate the feasibility of the influence channel and verify the exchange rate, foreign exchange reserves transfer effect, As to provide a theoretical basis for later empirical model; Thirdly, Using VAR model to empirical model of exchange rate,foreign exchange reserve and price, and through the ADF test and cointegration analysis, vector error correction model analysis, AR root test, Granger causality test and other measurement methods of empirical research to explore the foreign exchange reserves,exchange rate changes impact on prices in China.Through theoretical analysis and empirical research, research conclusions are as follows:(1)The RMB exchange rate change price index of our country exists reverse effect, low transfer effect and has a certain lag, The author thinks that is mainly reason of China’s currency is a managed floating exchange rate system and has not yet fully market-oriented, so that RMB nominal effective exchange rate movements affect the domestic price level was not significant;(2)The foreign exchange reserves reserves has a positive impact on prices, low level influence and a certain lag, In the long-term, the foreign exchange reserve is the cause of inflation, but it is not the main cause of inflation, Because with the increase of foreign exchange reserves, the corresponding increase Funds outstanding for foreign exchange,despite the impact of money supply increased, but the central bank will adopt the corresponding written policy(such as:raising interest rates, raise the deposit reserve rate, issuing central bank bills and other measures) to intervene and reduce the impact on the price index;(3)Inflation expectations and the growth of domestic economy have biggest impacted on prices in China.This is mainly reasons of China’s economic growth is closely related to the extensive investment-driven economic growth way, it is a concrete performance of high input, high consumption, low output. Therefore,Economic growth is bound to promote the increase of the raw material and energy demand leading to increasing inflation, but people have been estimated to inflation coming,they prepare to avoid damage in advance.whatever, prevention measures of inflation itself will cause a rise in asset prices,so that inflation expectations themselves will accelerate the arrival of inflation.Based on the above conclusions, this paper put forward policy recommendations include:(1)Should be effectively play the role of the good foreign exchange reserves to realize the value of foreign exchange reserves;(2)Timely reform of exchange rate system to enhance the economic impact resistance and self regulating ability by promoting the marketization of exchange rate and RMB internationalization;(3)To guide the public correctly understand the current economic situation by using the Internet, TV and other multimedia national policies to manage inflation expectations reasonably.The main innovation of this paper have:(1)The existed research more focused on the investigation of foreign exchange reserves or the RMB exchange rate separately studying the impact of the price index, but this article will put exchange rates and foreign exchange reserves to join model,enriching the model of endogenous variables.(2)After the reform and opening up, China’s financial system, monetary policy and the economic growth pattern have changed dramatically.In this paper, Based on the data after the reform and opening up to examine the impact of foreign exchange reserves and exchange rate changes on prices, it can make the paper more persuasive and predictability.