The Impact of Exchange Rate Change on Price Level and Related Strategy-Based on State Space Model Analysis

摘要

Based on semi-open economy, this thesis has established a state space model on the pass-through effects of RMB exchange rate's fluctuation on China's price level by empirical studies. Following empirical studies has found that there is a negative correlation between RMB nominal effective exchange rate and China's price level which means RMB appreciation will help control inflation, and the transmission effect of the exchange rate on prices is not complete, and there is a certain time lag. In addition, exchange rate's transmissibility on price changes as the exchange rate system undergoes reform. Based on these conclusions, the primary goal for exchange rate policy is to improve the current trade situation, increase the flexibility of exchange rate, enrich regulating measures of exchange rate,an establish an energy strategic reserve mechanism that suits China's national condition in order to prevent China from the impact of supply shocks on prices.