Study On The Impact Of RMB Exchange Rate On Price Level

Since the reform and opening,China's economy has stable,continuous and rapid development,more and more imported goods filled the domestic market,so the study of the RMB exchange rate on the impact of price levels will become more and more meaningful.With the rapid growth of GDP in China and the obvious regional differences,it becomes more meaningful to take various regions as the object of study and work out appropriate policies according to the results.Chongqing as a municipality directly under the central government and a city whose GDP growth speed lives in the first place at the same time,is selected as the research object.Through the combination of theory and empirical methods,this paper first studies the literature review at home and abroad,and then researches in theory according to needs by selecting pricing to market,purchasing power parity,precipitation costs and exchange rate fluctuations in theory.Followed close,combined with(VAR)model,and according to the availability data of Chongqing,the five relevant indicator variables which are namely goods supply,demand,money supply,exchange rate and price levels of Chongqing commodity market from 2009 to 2015 are studied empirically by data preprocessing,unit root inspection,selection of lag,model stationary test,impulse response function analysis and variance decomposition.EVIEWS9.0 is used on the software.Through the empirical analysis,it's concluded that the exchange rate changes will have a corresponding impact on three price indices in Chongqing.But the impact is limited,the increase in exchange rates will not only promote the rise in consumer prices of Chongqing,but also promote the increase in the purchase price of Chongqing producers.It will restrain factory price of producer in Chongqing,and with time passing by,the impact will be gradually weakened.Money supply has a strong explanation on Chongqing consumer prices,Chongqing producers purchase price and Chongqing producer factory price.Finally,combining with the theory,this paper concludes that the adjustment of the RMB exchange rate should follow the principle of small and gradual,control the money supply in Chongqing,and strengthen the supervision of the financial order;reduce the demand for imported goods which use petroleum as raw materials,vigorously develop the alternatives for petroleum,at the same time strengthen the judgment and analyses the development of foreign commodity prices trend,and participate in foreign futures commodity markets and financial derivatives market through hedging to reduce the impact which is brought by external commodity prices fluctuations and exchange rate risk on Chongqing's price levels.