| Economies have been closely aligned with the deepening of economic globalization, while international trades become a vital motivation of economic development for countries worldwide. In the case of international competitions over import and export trades, the pricing of exports plays an essential role. With the collapse of the Bretton Woods system, major economies adopted floating exchange rates which increase the volatilities of exchange rates. The movement of exchange rates affects the marginal costs for export enterprises and changes the pricing of export commodities, which has a profound influence on the structure of international trades. The exchange rate pass-through effect (ERPT) depicts the transmission mechanism of to what extent does exchange rate fluctuation affects import and export prices. Furthermore, ERPT is an important topic discussed in international finance as it connects the money market and commodity market and contributes to the general equilibrium analysis on individual country. This paper studies ERPT specifically on its characters in Chinese market.The concept of ERPT was first brought up by Kreinin (1977) with lots of studies on it followed. Characteristics of ERPT have been discovered, which formed the pattern of how exchange rates affect export prices. The uncovered mechanism helps the government with policy decision on a macro level and also contributes to enterprises on winning competitions in a growing fierce completion. Whether or not ERPT exists was firstly considered by researchers. Some of them believe that ERPT does not exist under certain circumstances while others concluded on the contrary. The existence of ERPT of RMB has been rarely discussed, let alone its effects in various industries. Fluctuation of exchange rates may not bring a same level change of export price due to incomplete ERPT, which may be the result of sticky price?sunk cost and Pricing-to-market (PTM) behaviors. Researchers have been study the incomplete ERPT theoretically and empirically and often come to the conclusion that ERPT does have the characteristic of incompleteness, which is inconsistent with the Law of one price and Purchasing Power Parity (PPP). Asymmetric pass-through of exchanges rates has been studied in recent years also as the extent of transmission effects is different with either appreciated or depreciated currencies. Moreover with the economic development and the variation of relative international competitiveness, effects of ERPT change along which presents another character as time varying.ERPT has the following four characters as existence?asymmetrical? incompleteness and time varying. Deep analyzing the above characteristics is the prerequisite of acknowledging the effects of ERPT. This paper analyzes the features of the industry-specific ERPT theoretically and empirically. There are five chapters all together with chapter one, the introduction, sets forth the theoretical value and practical significance of ERPT with literature review provided also. In chapter two, theoretical analysis is done on ERPT with models built on each of the four characteristics followed by model proving and analysis. Chapter three and Chapter four raises the empirical model and analyzes the empirical result of the model estimation using data from 2005 to 2015. Conclusion and policies recommended are available in chapter five.For the existence aspect of ERPT, the following aspects of work has been done in this paper:firstly, it takes the model of two nations as the basis, analyzes the reasons of the existence of ERPT. In the next, it combines reality to analyze the factors in international trade that restrain ERPT:the profit level of exporting enterprises; contract, export control and other external factors; the rise of the international status of domestic money has made the proportion of producer currency pricing greater. In the next, according to the modeling thinking introduced by theoretical model, it establishes non-restrictive error correction model, adopts Bounds Testing Method proposed by Pesaran in 2001 to analyze the co-integration relations between the exporting price level of domestic currency and nominal effective exchange rate, so as to judge the existence of ERPT.Regarding to the incompleteness aspect of ERPT, this paper analyzes from the following angles:first of all, it takes the cost markup pricing method adopted by exporting enterprises as the entry points, conducts the theoretical analysis on the incompleteness of ERPT, emphatically discusses how exchange rate displays the incomplete pass through in the condition that marginal costs remain unchanged. Subsequently, it analyzes the effects of price stickiness, the pricing strategies, pricing methods and demand elasticity and supply elasticity of exporters on exchange rate incomplete pass through. In addition, it estimates unrestricted error correction model, acquires the long-term and short-term regression coefficient of ERPT. In order to judge whether ERPT is complete or not, it conducts Wald testing on the regression coefficients of error correction model and judges whether regression coefficient is equal to-1.For the asymmetry of ERPT, this paper elaborates it from three aspects:at first, it analyzes how market power, price falling rigidity and sunk costs make ERPT produce the asymmetry. In the empirical aspect, introduces dynamic virtual variables in error correction model with the multiplication method, identifies the asymmetric changes of exporting price of domestic currency in the appreciation and depreciation of exchange rate. By testing the significance of virtual variables, it judges whether the asymmetry exists.At the empirical discussion, this paper studies the time-variability of ERPT from two aspects. On one hand, it applies rolling regression to study the variation situation of ERPT coefficient with time, and analyzes the time-variability characteristics of ERPT coefficients; on the other hand, it introduces virtual variables with the multiplication method to divide the sample period, and judges the mutation day of ERPT coefficient by estimating virtual variables.In addition, in order to analyze the short-term dynamic effects of exchange rate fluctuation on the exporting price of domestic currency, this paper establishes structural vector auto-regression model(SVAR), estimates the short-term restrains exerted on it, and finally adopts pulse response analysis to study on the dynamic effects of exchange rate of exporting price of domestic currency.The following conclusions are mainly obtained in this paper:firstly, in long term, the pass through effects of our domestic industry-specific effective exchange rate exist in 7 industries, which are live animals and animal products; food, beverage, tobacco; plastics, rubber and its products; pearls, diamonds, precious metal products; base metals and their products; vehicles, aircraft, ships; miscellaneous products industries, and no obvious ERPT phenomenon exists in other industries. Secondly, it proves the incompleteness of ERPT. The exchange pass through rate of live animals and animal products; food, beverage, tobacco; plastics, rubber and other products; base metals and other products industries is between-1 and 0, and the ERPT coefficients of pearls, gems, precious metal products; vehicle, aircraft, ships; miscellaneous products industries are positive. Thirdly, the asymmetrical pass through effects of exchange rate exist in vehicle, aircraft and shipping industry, and asymmetrical pass through effects of exchange rate are not obvious in other industries. Fourthly, the ERPT coefficients of live animals, animal product industry, food beverage industry and plastic and rubber industry have been in the decline trend, most of our domestic 7 industries with significant ERPT appear the mutation of ERPT coefficient in American financial crisis in 2008, except the decline of ERPT coefficients in base metals and products industries, the ERPT coefficients of each other industry have climbed. Fifthly, the short-term fluctuation of ERPT coefficients has been greater, ERPTs usually vanish thoroughly after 10 months.This paper can conduct the profound research from several aspects as below. It further analyzes the influential factors of ERPT coefficients; it analyzes the effects of ERPT on domestic economic variables, such as currency inflation rate, trade balance, etc. In theoretical effects, it expands from partial balance analysis to ordinary balance analysis, and from comparison static analysis to dynamic analysis.In summary, this paper mainly involves three aspects of innovations:this paper specifically studies the existence, incompleteness, asymmetry and time-variability and other characteristics of industry-specific ERPT as well as the short-term dynamic effects of exchange rate fluctuation. Research is relatively complete and profound, which compensates the deficiency of domestic related research to some extent, research contents are innovative to some extent; ERPT studied in this paper is based on industry-specific date, which differentiates from the research based on overall exchange rate, measures different pass-through features of different industries, considers the specialty of things and has creativity; in the terms of empirical methods, it adopted bounds testing to estimate various characteristics of ERPT in unrestricted error correction model, and most domestic research on ERPT adopts E-G two-step method or Johensen cointegration testing, literature of research on ERPTs by bounds testing method has not existed domestically, and the method has certain innovation. |
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