Study on incomplete transmission rate that the RMB exchange rate has on domestic price

ZHANG Xinghua, LUO Biao

Systems Engineering - Theory & Practice ›› 2017, Vol. 37 ›› Issue (10) : 2512-2526.

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Systems Engineering - Theory & Practice ›› 2017, Vol. 37 ›› Issue (10) : 2512-2526. DOI: 10.12011/1000-6788(2017)10-2512-15

Study on incomplete transmission rate that the RMB exchange rate has on domestic price

  • ZHANG Xinghua1, LUO Biao2
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Abstract

Since China's participation into the World Trade Organization (WTO), especially the implement of the managed floating exchange rate system in 2005, China's economy has become more and more open and the impact that the exchange rate has on domestic price has been being strengthened. The variation of exchange rate is becoming a significant factor, determining whether China's economy is in inflation or deflation. Therefore, study on the transmission rate that the exchange rate has on the variation of domestic price is of great meaning. By structural VAR model, with the quantitative analysis on quarterly data from 2000 to 2013, this paper finds the transmission rates that the variation of exchange rate has on import prices index (IPI), producer price index (PPI) and consumer price index (CPI) are around 0.41, 0.32, 0.11 respectively, which means the appreciation of the RMB can contain inflation to some extent. Besides, the variation of exchange rate has different transmission rates on consumer price index of different varieties. Namely, the transmission rates on food, clothing and residential price index are higher, which are 0.15, 0.24, 0.15 respectively; the transmission rates on household equipment, transportation and communication, entertainment and health care price index are lower, which are 0.03, 0.05, 0.08, 0.10 respectively. Moreover, the real economy and monetary policy have stronger impact on the variation of domestic price than the variation of exchange rate.

Key words

RMB exchange rate / price index / incomplete transmission rate / VAR model

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ZHANG Xinghua , LUO Biao. Study on incomplete transmission rate that the RMB exchange rate has on domestic price. Systems Engineering - Theory & Practice, 2017, 37(10): 2512-2526 https://doi.org/10.12011/1000-6788(2017)10-2512-15

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Funding

National Natural Science Foundation of China (71272064); Science Fund for Creative Research Group of the National Natural Science Foundation of China (71121061)
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