Research On The Effect Of RMB Exchange Rate Changes On Price Transmission

Exchange rate represents the external value of one country's currency, providing a green channel for international trade. And domestic price level represents the internal value of one country's currency, playing an important role in one country's economic development. With the accelerated development of economic globalization,the research about the relationship between exchange rate and domestic price level has become an important subject of international economics. According to the International Economics theory, the changes between exchange rate and price levels were positive correlation. When a currency's external value rises, its internal value also rises, namely their currencies rise, domestic prices fall, and vice versa. It is the exchange rate's transmission effect. Purchasing power parity theory says,the exchange rate's transmission effects on the prices are complete. The price in accordance with the exchange rate volatility changes one to one positive linkage.However, purchasing power parity theory only considers the influence of the purchasing power to the exchange rate, but ignore the reaction of the exchange rate to the purchasing power, so the conclusion remains to be further improved. However, the RMB was in a state of appreciation, but domestic price level did not decline. Instead,it simultaneous appeared the RMB appreciation and inflation. Obviously, this phenomenon is contrary to international economics theory. Based on China's domestic economy, this article will do the empirical analysis about exchange rate fluctuations on the impact of price, in order to make macro policies more according with the situation of ChinaThe study is based on the theories of exchange rate transmission, it analysis the transmission mechanism of exchange rate changes on the price, and does the empirical analysis about the transmission effects of RMB exchange rate changes on China's export prices and consumer prices; The study finds, When the exchange rate changes, export prices and consumer price change on the contrary. And the transmissibility of the RMB exchange rate movements on export prices is greater than on the consumer prices; The rising cost of export manufacturers can improve China'sconsumer prices index; The money supply fluctuation can influence the domestic price; International competitive pressures have no significant impacts on price index;The rising of consumer price index is more from its stickiness. Finally it gives a reasonable policy suggestions: deepening the reform of RMB exchange rate,implementing the stable monetary policy, promoting the marketization of interest rate's policy,and encouraging the enterprise technology innovation, accelerating the industrial upgrading and structural adjustment.