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Exchange rate pass-through, regional heterogeneity, and individual welfare distribution: evidence from a natural experiment in China

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  • Jiajia Lu

Abstract

A large and sudden exchange rate appreciation of the RMB in China in 2005 is used as a testing ground to identify the exchange rate pass-through across heterogeneous regions and the individual welfare distributional effect in urban China. The Difference-in-Differences (DID) methodology is utilized based on the China Urban Household Survey data spanning from 2002 to 2007.The results suggest that the RMB appreciation induces a substantial improvement in consumers’ total welfare, but the poor benefit more than the rich. I further find that consumers gain more in regions with greater regional marketization and trade openness, while higher transportation costs dampen the pass-through of the exchange rate on regional consumption prices, hence harming the consumers’ welfare.

Suggested Citation

  • Jiajia Lu, 2026. "Exchange rate pass-through, regional heterogeneity, and individual welfare distribution: evidence from a natural experiment in China," Applied Economics, Taylor & Francis Journals, vol. 58(29), pages 5677-5698, June.
    • Handle: RePEc:taf:applec:v:58:y:2026:i:29:p:5677-5698
    DOI: 10.1080/00036846.2025.2510681
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