Research On The Impact Of The RMB Exchange Rate Fluctuation On Price Level In China

The Government Work Report 2017 proposed that the RMB exchange rate will be further liberalized,and the currency's stable position in the global monetary system will be maintained.The trend of RMB liberalization is irreversible.China launched the reform of the RMB exchange rate formation mechanism that we will implement a managed floating RMB exchange rate system from 2005.Subsequently,China Foreign Exchange Trade System(CFETS)released a RMB exchange rate composite index to better reflect the market.The RMB was formally included in the IMF's Special Drawing Rights basket in 2015.The fluctuation range of the RMB exchange rate gradually increased.Based on the theory of exchange rate pass-through,exchange rate fluctuations will cause changes in domestic price level.Therefore,it is of great significance to study the influence of the RMB exchange rate on domestic price level under the background of the RMB exchange rate liberalization.This paper is composed of five parts.The first part illustrates the research background,meanings,the literature reviews,the structure of this paper,research methods and the main contributions.The second part focuses on the exchange rate pass-through theory including the theoretical basis of the impact of exchange rate fluctuations on domestic prices,incomplete exchange rate pass-through and asymmetric exchange rate pass-through.This part shows that exchange rate affects domestic price through trade mechanism,money-wage mechanism,money supply mechanism,expected mechanism and debt mechanism.Incomplete exchange rate pass-through can be explained by pricing to market,sunk costs theory,international production segmentation theory,exchange rate fluctuation theory and opening level theory.The reasons of asymmetric exchange rate pass-through are market share theory,production transformation theory and quantity restriction theory.Based on the law of one price,the third part constructs the multivariate statistical model by considering the asymmetry exchange rate pass-through.The variables include consumer price index,the nominal effective exchange rate,the global commodity price index,the money supply and industrial added value.The empirical results in the fourth part show that the impact of RMB exchange rate fluctuations on the price level is incomplete.From 2001 to 2016,the RMB exchange rate fluctuations have a positive impact on the domestic price level,the impact coefficient is 0.132082.In the phased analysis,the influence coefficient of the RMB exchange rate on the price changed from-0.200133 to 0.338675,and the negative value changed to positive value,and the influence degree was obviously enhanced.In addition,the impact of the RMB exchange rate depreciation on the price level is greater than the appreciation.The fifth part is the conclusion and enlightenment,and this part is a summation section.The fifth part is the conclusion and enlightenment.It is concluded that the influence of RMB exchange rate fluctuation on price is not complete and the influence degree is enhanced.The influence of RMB devaluation on price is greater than that of appreciation.This part suggests that the RMB exchange rate should be further liberalized,push the RMB internationalization,and strengthen the international balance of payment.