Abstract:
Previous research has found industry- and time-varying effects of the exchange rate on domestic producer prices in China for the years 1980-2002. In this study, I examine the determinants of these variations. The variation of pass-through elasticity across industries is explained by a set of variables that characterize market competitiveness, while the change of the pass-through elasticity over time is interpreted by infrastructure development and the increasing proportion of non-state-owned enterprises in the economy, along with the structural break in years 1993-94. This study sheds light on the current debate on the effect of the urged appreciation of the Chinese Yuan.