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Transmission Mechanism for RMB Exchange Rate Movements on Export Commodity Prices and Its Implication for Policy

Author: LinXiaoDong
Tutor: LuoZuoYan
School: Guangdong College of Commerce
Course: Finance
Keywords: RMB exchange rate Exchange rate pass Export goods Price transmission VAR
CLC: F752.62;F224
Type: Master's thesis
Year: 2011
Downloads: 335
Quote: 0
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Abstract

Exchange rates and commodity prices, as in an open economy, two of the more important economic variables, both the existence of a close relationship. Discussion and research on the relationship between the exchange rate and the price is also growing. With the wave of global economic integration deepens and the degree of openness of the national economy to strengthen the impact of the relationship between a country's economy has become more significant. Since July 2005, the RMB exchange rate formation mechanism reform, the appreciation of the renminbi to become an important part of our economic life over the past five years. With the enlargement of the appreciation of the exchange rate changes, whether it be the stability of the price level of export commodities a significant impact on domestic research community to discuss one of the hot spots. The first description of China's foreign trade, as well as Sino-US export status quo, combined with the theory of the research, more detailed combing transfer theory of exchange rate movements and export commodity prices. The article also analyzes the transmission mechanism of China's RMB exchange rate changes on China's export commodity prices, some of the assumptions in the proposed study. December 2003 - December monthly data, construct five major industries in China export commodity price index, to construct a reasonable mechanism for the impact of exchange rate changes on China's export commodity prices lag model. The Johansen Cointegration estimated exchange rate changes on export prices of long-term relationship error correction model analysis of short-term deviation from the long-run equilibrium adjustment effects; impulse response function and variance decomposition analysis of exchange rate changes on dynamic export prices caused by short-term and long-term relationship. Finally, the use of autoregressive distributed lag model specific exchange rate pass is given short-term and long-term flexibility. Export commodity prices and RMB nominal effective exchange rate, the cost of production of export manufacturers, the level of foreign demand, competitor price level in the 5% significance level, there is a long-term equilibrium cointegration relationship can be drawn from the empirical analysis results . And the industry's long-term cointegration relationship is not the same, the RMB exchange rate movements on the pass-through effect of the price of China's exports of plastic products 0.246, such as the pass-through effect of the fur products, leather products, steel, paper products were 0.637,0.873,0.527 0.292. The pass-through effect are incomplete pass. , Leather, fur and leather products, the pass-through effect, this also shows that the labor-intensive industries in the face of negative price impact arising from changes in foreign exchange rates would be much better, while the technology-intensive and capital-intensive industries, such as plastic products and steel lower pass-through effect on the market, there is a certain degree of pricing power. Can also be seen from the long-term cointegration relationship, the production costs for commodity export prices and the level of foreign demand and competitive price level is also larger, such as paper products industry is partly due to changes in the level of foreign demand, on the one hand, is showing larger fluctuations due to changes in the cost of production of the export price. In addition, by the impulse response function and variance decomposition results can be drawn, passing less flexibility of exchange rate changes on short-term export commodity prices, but in the long-term industry presents different delivery flexibility. Autoregressive distributed lag model of export prices and other influencing factors the regression obtained results can be obtained, different commodity export prices showed a different exchange rate to pass flexible and quite different. Finally, based on the theoretical and empirical results, combined with the current domestic and international situation, proposals for response to the pressure of RMB appreciation, the short-term and long-term measures to respond to changes in foreign exchange rates as well as the main export industry. For domestic monetary policy and fiscal policy status quo to circumvent the appreciation of the renminbi alternative policies.

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