Abstract
This study analyzes the exchange rate pass-through into China aggregate import prices and prices of eleven industries under the HS classification. Chinese monthly data from July 2005 to July 2015 are used. Bounds test finds that all industries have co-integration relationship, with the exception of footwear and headgear products (HS12) and transport equipment (HS17). We have researched the short- and long-run pass-through to China import prices with ARDL model and the estimated results are as follows: the degree of exchange rate pass-through to China’s aggregate import prices is very high; both the short- and long-run coefficients for various industries are fairly different; the pass-through coefficient is high in industries of basic metals and metal products, chemical products, pulp and paper products, plastic and rubber products; the degree of pass-through is comparatively low in industries of textiles products, raw hides, leather and furs products, wood and wooden products and non-metallic mineral products; the pass-through into import prices for industries of machinery and equipment (HS16) is incomplete.
Highlights
Exchange rate pass-through (ERPT) refers to the elasticity of import and export prices and domestic price levels resulting from change in exchange rate
How to cite this paper: Hong, P.P. and Zhang, F.F. (2016) Exchange Rate Pass-Through into China’s Import Prices: An Empirical Analysis Based on auto regressive distributed lag (ARDL) Model
Since this paper studies ERPT which means exchange rate elasticity of import prices, we take logarithms of all variables, it’s helpful to eliminate heteroscedasticity
Summary
Exchange rate pass-through (ERPT) refers to the elasticity of import and export prices and domestic price levels resulting from change in exchange rate. (2016) Exchange Rate Pass-Through into China’s Import Prices: An Empirical Analysis Based on ARDL Model. The degree of ERPT depends on exporters’ pricing strategy, that is, employing a strategy of producer-currency pricing (PCP) or local-currency pricing (LCP) The former denotes a situation that currency fluctuations completely translate into import prices while the latter corresponds to various prices exporters set in different markets. This article employs auto regressive distributed lag (ARDL) model to analyze both the shortand long-run ERPT of RMB into aggregate import price and prices for various industries. This is to clarify domestic competitiveness of relevant industries and products which means a lot for China’s industry structure adjustment and optimization.
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