Studies on RMB Appreciation Pass-through to Prices of Agricultural Products in China
|Keywords||Exchange rate pass-through Nominal effective exchange rate Empirical analysis Import prices of agricultural product|
As one of the most important economic variable in an open economy, exchange rate is an important factor which impact economy home and aboard. Performing its functions of price conversions in international trade and other foreign economic activities, exchange rate is an important economic lever. Exchange rate fluctuations affect a country’s import and export price, which roles in the entire economy, so that different fields, different industries and the whole macro-economy have been affected to some extent. With the acceleration of China’s reform and opening up, especially since the exchange rate reform, exchange rate effects has been growing focused on China’s economic development, in which the issue of exchange rate pass-through has been the focus of discussion in recent years.Exchange rate pass-through is the changes of tradable goods prices caused by the changes of exchange rate, which reflects to what extent the effects of exchange rate changes pass to tradable goods price by import and export enterprises. Elasticities approach to the Balance of Payments considers that exchange rate pass-through flexibility of import and export goods prices is one hundred percent, which means that exchange rate changes is fully reflect in the prices of tradable goods by the currency of the importing country, thereby generating expenditure switching effect by changing the relative price of tradable goods, affecting the trade balance.In recent years, with the improvement of the degree of China’s outward economy, China has developed into a trading power. Agricultural products as one of the important imported and exported commodities, its import and export scale is getting enlarged. In 2007, China’s agricultural exports reached to 36.62 billion U.S. dollars, an increase of 18.0%, imports amounted to 40.97 billion U.S. dollars, an increase of 28.1%; 2008, China’s agricultural exports amounted to 40.22 billion U.S. dollars, an increase of 9.8%, imports of agricultural products amounted to 58.33 billion U.S. dollars, an increase of 42.4%; In 2009, China’s agricultural exports amounted to 39.21 billion U.S. dollars, while imports amounted to 52.17 billion U.S. dollars. January-April 2010, China’s agricultural exports amounted to 13.9 billion U.S. dollars, an increase of 20.8%, the amount of agricultural imports reached to 57.1 billion U.S. dollars, a year-to-year imports increase of 31.6%. In the meanwhile, China’s import dependence of certain types of agricultural products is very high. Soybean, for example, its import dependency reached to 80%, namely: the imports of China’s soybean accounted for 80% of total consumption in China, and the proportion is rising up year by year, meanwhile, the prices of agriculture products is going up in recent years, which attracted more and more for agricultural products Attention. Therefore, the study of RMB exchange rate movements on import prices of China’s agricultural products is significant.The paper takes a combination of theoretical and empirical research methods, on the one hand, comb the exchange rate pass-through theory, mainly explains from incomplete competition, products differences, exchange rate overshoot, different monetary pricing, sunk cost and other factors; on the other hand, the paper uses various measurement Methods, including: stability test, cointegration test, Granger causality test, impulse response functions and variance decomposition, quantitative study of the RMB exchange rate changes effects on import prices of China’s agricultural products. The results show that: the exchange rate pass-through effect of imports of China’s agricultural products and China’s prices of agriculture products is incomplete, with lag effect. The price of China’s agricultural imports is not prominent in the short term by the impact of the RMB exchange rate, but the effect is growing in the long-term. In long term, China’s broad money supply (M2) and prices of agricultural means of production of China(APMP) are main factors which caused changes in prices of agricultural products in China.