The Analysis Of RMB Exchange Rate Fluctuation’s Influence On Domestic Prices

In a open economy,since countries communicates with each other more frequently,exchange rate has become more and more important to every country,as a currency’s price to another currency.And the stability of price is one of the four goals of the macro-control.It’s closely related to the residents’daily life.So the price level has also been closely concerned by monetary policymakers and residents.On July21,2005,our country conduct a reform of RMB exchange rate system, in order to make RMB exchange rate closer to the market and play its role better.Since then,RMB exchange rate has experienced a steady appreciation process.According to the statistics published by the Bank for International Settlements (BIS),the effective and nominal effective exchange rate of RMB calculated according to the trade weight has appreciated by36.63%and27%,from July2005to October2013.Theoretically,the appreciation of RMB can effectively enlarge the import and reduce the export,then reduce the trade surplus and decrease the money supply,which can finally ease the domestic inflation,however,the fact in China is not like this.When RMB appreciates rapidly, the net exports is still growing,the surplus of current account continue to rise,and the record of foreign exchange reserves has been refreshed continuely.At the same time,domestic price has also experienced several rounds of rising,and inflation pressure increased.The contradiction between theory and reality require us reconsider the how does the exchange rate influence the price.Based on this phenomenon and some traditional and new theories,this article conduct an empirical analysis of the comprehensive influence of RMB exchange rate fluctuation on three kinds of domestic prices.This paper includes six chapters.The first chapter is the introduction.It describe the background,intention,structure of this paper,it also briefly introduce some abroad and domestic existing theoretical and empirical research about the price pass-through effect of exchange, at last it points out the innovation and deficiencies of this paper.The second chapter introduce the relevant theories of relationship between the fluctuation of exchange rate and prices,mainly including the traditional purchasing power parity (PPP),the theory of balassa-samuelson and the model of McKinnon which states that currency appreciation will cause deflation under certain conditions and some new theories of exchange. pass-through,this chapter theoretically explain the relationship between exchange rate and prices.The third chapter analyses the transfer-path,based on the theories above.In this paper,the pathes are classificated into three kinds,the path through import prices,the path through macroeconomic variables and the path through asset prices.This chapter states each path’s respective conduction theory and mechanism,and lay a foundation for further empirical analysis.The fourth chapter mainly introduce the reality,reviewing the change process of RMB exchange rate since the exchange rate reform on July2005and domestic prices of the past ten years.The fifth chapter conducts an empirical analysis of the influence which the exchange rate fluctuation have on domestic prices.This chapter analysis the how will the exchange rate’s fluctuation influence the domestic prices of the three pathways by establishing a VAR model,after conducting the unit root test,cointegration test and Granger causality test.This chapter also analysis the different influences to the different kinks of prices. The last chapter make a conclusion and give some policy suggestions.The empirical results show that:First,Overall,in the short term the appreciation of RMB exchange can help to reduce the import price,producer price and consumer price in a certain degree.It shows that the appreciation of the RMB exchange rate make a certain contribution to ease domestic inflationary pressure.However, control the growth of money supply and price of assets are more helpful to reduce inflation.Second,the impacts of the appreciation of RMB to import pricess producer prices and consumer price decrease one bye one.So in the long run.the appreciation of RMB can not suppress the rise of domestic prices effectively,instead,it is likely to increase the inflationary pressure by increasing asset prices.Based on the empirical results above,this paper give some relevant policy suggestions.Firstly,the appreciation of RMB can be a tool to control inflation in the short term,while,curbing inflation should make full use of multiple approaches,apply integrated monetary policy,fiscal policy and the management measures of exchange rate.Secondly,we should change the development’s strategies,actively expand the domestic demand,transfer the model of economic growth.Thirdly,we should improve the formation mechanism of RMB exchange rate;expand the fluctuation’s scope of the RMB exchange rate,make the RMB’s exchange rate more flexible and marketing,build a truely managed floating exchange rate system;keep RMB stable in the short term and the appreciation of RMB should be slowly and progressively.