Exchange Rate Pass-Through to Import and Export Prices: Empirical Analysis in China

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.