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Exchange rate pass-through to inflation in China

  • Jiang, Jiadan
  • Kim, David

As the Chinese economy becomes more open and the authorities scrapped the peg to the U.S. dollar in July 2005, exchange rate movements start to influence the price inflation in China in a significant way. This paper estimates a structural vector autoregression (SVAR) model to investigate the impact of exchange rate changes on prices in the presence of domestic monetary policy influence for China. We find that (i) the exchange rate pass-through (ERPT) to the producer price index (PPI) and retail price index (RPI) are generally incomplete; (ii) the ERPT to the PPI is higher than that to the RPI; (iii) the ERPT to the PPI and the RPI are relatively rapid. The SVAR evidence suggests that exchange rate stability plays a unique and significant role for price stability in China.

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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 33 (2013)
Issue (Month): C ()
Pages: 900-912

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Handle: RePEc:eee:ecmode:v:33:y:2013:i:c:p:900-912
DOI: 10.1016/j.econmod.2013.05.021
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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