Economic policy uncertainty and price pass-through effect of exchange rate in China

Yonglian Wang, Lijun Wang, Changchun Pan and Songzhi Hong

Pacific-Basin Finance Journal, 2022, vol. 75, issue C

Abstract: Using the Chinese economic policy uncertainty (EPU) index, this paper investigates the spillover effect on the price pass-through effect of the RMB exchange rate and uncertainty, using the time-varying parameter vector autoregressive (TVP-VAR) model. We find that EPU has a significant effect on the price pass-through effect of the RMB exchange rate, which indicates that an increase in uncertainty will significantly enhance the price pass-through effect of the exchange rate. In addition, EPU itself can have a significant spillover effect on the exchange rate. Finally, the price pass-through effect of the RMB exchange rate is incomplete, and its impact on the price level gradually decreases along the circulation chain. The Chinese government should pay close attention to the impact of economic policy uncertainty on the price pass-through effect of the RMB exchange rate and the exchange rate and further strengthen the risk prevention and early warning mechanism to minimize the impact of uncertainty on China's macroeconomy.

Keywords: Economic policy uncertainty; Exchange rate; Spillover effect; Price pass-through effect; TVP-VAR model (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927538X22001391
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:75:y:2022:i:c:s0927538x22001391

DOI: 10.1016/j.pacfin.2022.101844

Access Statistics for this article

Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

More articles in Pacific-Basin Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().