Exchange rates and prices: Evidence from China

Jingtao Yi

The Journal of International Trade & Economic Development, 2013, vol. 22, issue 5, 639-657

Abstract: This article develops a pricing model that incorporates an industrial organization approach with the traditional quantity theory of money to explain the impact of exchange rates on consumer prices. Using time-series data on prices and exchange rates of China, the model replicates the main features of the observed facts: exchange rates influence consumer prices through changing import prices; money supply and output influence consumer prices following the quantity theory. The estimating results show that exchange-rate pass-through to consumer prices is low and increases from the short run to the long run. The extent of pass-through is likely to depend on markup adjustment and marginal costs.

Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:taf:jitecd:v:22:y:2013:i:5:p:639-657

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DOI: 10.1080/09638199.2011.589032

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