Influence Of Exchange Rate Fluctuation On Inflation

With the development of global economic integration, the economic cooperation between countries has become increasingly closer. The function of exchange rate becomes more important. As a principal economic indicator, inflation rate attracts more attention of all countries. Research on the relationship between exchange rate and inflation can facilitate the function of exchange rate in adjusting the economy, and it can provide theoretical support for more stable and better development of Chinese economy.This thesis aims at relationship among exchange rate, CPI, import price indices, money supply M2 and international capital flow by utilizing domestic data from 2005 to 2015. Each chapter’s content is as follows:Chapter 1 is an introduction, which expounds on research background and purpose, conduct literature review, and summarizes the structure and innovative points of the thesis.Chapter 2 is a summary of exchange rate theory, which summarizes the law of one price, theory of purchasing power parity, Balassa-Samuelson Hypothesis and the theory of exchange rate pass-through, laying a theoretical foundation for exchange rate.Chapter 3 is about historical trend analysis of Chinese exchange rate and inflation level. It investigates several domestic reforms of exchange rate regime, analyzes the function of exchange rate in different economic stages in China, and tries to find out the cause of inflation and its characteristics by analyzing four outstanding inflation events in China.Chapter 4 is about pass-through analysis, which investigates relationship between four inflation and exchange rate.Chapter 5 is an empirical analysis, which analyzes the relationship amongfive economic data by using VAR model and come to the conclusion of incomplete pass-through of exchange rate change to inflation.Chapter 6provides conclusions and suggestions.