An Analysis On The Effect Of Pass-Through From RMB Exchange Rate To Price Level

The exchange rate and price are always the key variables in open economy,with the increase of China's foreign economic openness,a growing number of research focuses on China's exchange rate and the price.In the background of internationalization of the RMB,whether the expansion of the exchange rate fluctuations will affect the stability of domestic price level,and how to adjust monetary policy,industrial policy accordingly has become the focus of attention of policymakers.The thesis has used related data of January 2005-June 2015 to do an empirical study of the effect of RMB internationalization on Exchange Rate Pass-through.Firstly,selecting the relevant indexes which affect the domestic price level and analyzing the long-term cointegration relationship between exchange rate and price by Johansen cointegration test.Secondly,basing on the VAR model,we use the impulse response function and variance decomposition method to analyze the short-term Dynamic induced relationship between exchange rate fluctuation and domestic price level.Thirdly,adding the related index of internationalization of RMB to the original VAR model,and analyze the effect of RMB internationalization on Exchange Rate Pass-through by phased empirical research and measurement of pass-through coefficient.The result of the study shows that for one thing,whether it is the producer price index or the consumer price index,the RMB Exchange Rate Pass-through is incomplete with low transmission degree,in addition,compared with the consumer price index,the producer price index is more sensitive to the reaction of exchange rate fluctuations.For another thing,in the background of the rapid promotion of the RMB internationalization,the Exchange Rate Pass-through will decline in the short-run,in the contrary,it is likely to rise in the long-run.