| ID | 086474 |
| Title Proper | Exchange rate pass-through in China |
| Language | ENG |
| Author | Shu, Chang ; Su, Xiaojing |
| Publication | 2009. |
| Summary / Abstract (Note) | During the second half of 2007 and early part of 2008 when there were intense inflationary pressures in China, RMB appreciation was advocated as a means of helping to curb inflation. The effectiveness of appreciation in controlling inflation depends on the impact of exchange rate movements on import and domestic prices. Our analysis finds fairly large and speedy exchange rate pass-through (ERPT) to import prices: 50 and 60 percent for the short run and long run, respectively. However, the degree of ERPT decreases along the price chain from upstream to downstream prices. ERPT for consumer prices, the most downstream prices, is much milder and has substantial lags. A 10-percent rise in the nominal effective exchange rate will dampen consumer prices by 1.1 percent within a year, with very little pass-through in the first half year, and by 2.0 percent over the long run. These findings, particularly the ERPT to consumer prices, suggest that RMB appreciation can help to reduce inflationary pressures over the longer term. However, it is unlikely to provide rapid relief to the current round of high inflation because of the long lags in ERPT. The RMB needs to strengthen in effective terms to exert the desired dampening impact on prices. |
| `In' analytical Note | China and World Economy Vol. 17, No. 1; Jan-Feb 2009: p.33-46 |
| Journal Source | China and World Economy Vol. 17, No. 1; Jan-Feb 2009: p.33-46 |
| Key Words | Exchange Rate Pass-Through ; Import Prices ; Inflation ; RMB Appreciation ; China |