RMB Exchange Rate Pass-through
- YI Jingtao, LIU Xintong & MENG Shuang
- YI Jingtao, LIU Xintong (Renmin University of China, 100872)MENG Shuang (Central University of Finance and Economics, 100081)
As a link between exchange rate and trade, exchange rate pass-through is the basis for studying the economic effects of exchange rate fluctuations. Based on the customs database of business transaction-level data from 2000 to 2013, this paper proceeds from product heterogeneity and explores the underlying reason for higher RMB exchange rate pass-through in China than in developed countries. According to the pricing-to-market theory, this paper analyzes the product quality and the product's position in the company's product portfolio, which represent the product heterogeneity between firms and within firms respectively. The results show that the higher the product quality, or the more important the product is for the firm, the lower the exchange rate pass-through is. Further research has found that a lower RMB exchange rate has a positive effect on trade volume, especially for products of low prices and low quality, but may hurt gains from trade in the home country. In contrast, a higher RMB exchange rate may have a negative impact on trade volume, but can promote the adjustment of trade structure. Against the background of intensifying exchange rate fluctuations, this paper provides an important policy reference for promoting stable trade growth and high-quality economic growth.
- Exchange Rate Pass-Through, Exchange Rate Elasticity, Product Heterogeneity, RMB Exchange Rate