The Threshold Pass-through Effect Of RMB Exchange Rate And Expectations On The Import And Export Price

The exchange rate pass-through,which denotes the way and degree of the exchange rate fluctuation affecting the price level,is an important bridge linking monetary finance and the real economy.Since the floating exchange rate regime became popular,exchange rate pass-through has gradually intrigued the focus of researchers.Scholars have found that the exchange rate pass-through is incomplete and nonlinear.After the Exchange Rate Reform,with the increasing openness,RMB appreciation pressure has been released with RMB appreciation expectation until the latter half of 2015.Therefore,domestic researchers strengthen the study of exchange rate pass-through.The paper aims to explore the affecting mechanism of RMB rate and exchange rate expectation to China's import and export price from two aspects of theory and demonstration,so that the government can use exchange rate tools to achieve macroeconomic regulation and promote RMB internationalization process and orderly liberalization of capital account.This paper analyzes the influence of exchange rate expectations and the variability of marginal costs on the exchange rate pass-through effect by building a two-period dynamic model in a framework of imperfect market,and tests this influence empirically with Chinese data and threshold regression created by Hansen(1999).As demonstrated by theory,the exchange rate pass-through effect on the import price is uncertain on the direction because of the import demand elasticity.The appreciation expectation can decrease the import price,and the variability of marginal costs may result in the threshold pass-through effect.It suggests empirically that the coefficients of RMB pass-through on the import and export price were both negative,namely,RMB appreciation can improve the import and export price.The presence of RMB appreciation expectation reduced the import price and raise export price.The exchange rate pass-through effect on the import price varied remarkably and neither did the export price when the rate or expectation reached the specific threshold level.Plus,foreign trade demand,price of substitute goods and cost of production factors would affect the price level.