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Price Pass-through Effect of Change in RMB Exchange Rate
Fang Xiancang He Wenwen
2010, 42 (2):
77-82.
Based on the fact that China is a semi-open economy, we formulate pass-through functions of import price and CPI to exchange rate respectively. We further analyze the relation among import price index, consumer price index, competition of domestic market, costs of product for foreign exporters, real effective exchange rate and money supply with VAR model. We reach the conclusion that the real exchange rate of RMB has weak pass-through effect on the import price and CPI. However, the effect of real exchange rate on the import price is stronger than that on CPI, which proves an incomplete price pass-through effect. The costs of product for foreign exporters have positive effects on domestic CPI, which is stronger than that comes from real exchange rate. In the aspect of curbing inflation, therefore, the government should implement exchange rate arrangement with more flexibilities rather than the pegged exchange rate.
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