Exchange rate pass-through to inflation in China

Jiadan Jiang and David Kim

Economic Modelling, 2013, vol. 33, issue C, 900-912

Abstract: 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.

Keywords: Exchange rate pass-through; Monetary policy; Inflation; Structural VAR (search for similar items in EconPapers)
JEL-codes: C32 E31 E52 F31 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:33:y:2013:i:c:p:900-912

DOI: 10.1016/j.econmod.2013.05.021

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