Abstract
This paper studies the degree of the exchange rate pass-through (ERPT) to import and consumer prices in China with both the ratio of China’s imports to GDP and domestic prices of China’s main trade partners going up. Statistic results show that the degree of ERPT is somehow less than the degree of marginal cost plus mark-up pass-through of exporters, and econometric analyses reach the same conclusion. Besides, the ERPT to import prices is found to be high while the ERPT to CPI is low owing to some factors that obstruct the import prices pass-through channel to domestic CPI. But this situation has been changing significantly since August 2005. Thus, a more flexible exchange rate system is needed for China to absorb the price shock from aboard efficiently.
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