This paper conducts empirical analysis on exchange rate pass-through to import and export prices in China with monthly data from 1999 to 2008, and finds that exchange rate pass-through is higher to export prices than to import prices. The analysis shows that the difference in the pass-through of exchange rate to import and export prices arises from the difference in industrial margin, international treaties and trade barrier. Based on empirical results and China's sustained trade surplus, this paper concludes that the demand elasticity of China's export is small due to strong competitive edges in price of China's export products, so the appreciation of RMB will do little in reducing China's foreign trade surplus.
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