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The Effect of RMB Exchange Rate Pass-through: An Empirical Analysis Based on VAR

Cheng Liubo Liu Houjun  
This paper investigates RMB nominal exchange rate pass-through by means of Vector Autoregressive Model. The result is that the pass-through of RMB nominal exchange rate into China' s import price and consumer price is statistically significant, but the degree is highly incomplete. There is significant difference in the degree of exchange rate pass-through under different inflation environment, the pass-through into import price increased in the period with relative high inflation rate, but in the era with relative high inflation the pass-through into consumer price declined. The conclusion is that exchange rate adjustment is not sufficient to correct the external imbalance, and it is necessary to adopt sound monetary policy to isolate the inflation pressure from outside.
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