Abstract
This paper estimated pass-through effects of the yuan's exchange rates on the prices of Japanese and the US imports from China. Empirical results show that, a 1% nominal appreciation of the yuan would result in a 0.23% increase in the prices of the US imports in the short run and 0.47% in the long run. Japanese import prices were relatively more responsive. For a 1% nominal appreciation of the yuan against the yen, Japanese import prices would be expected to rise 0.55% in the short run, and 0.99%, an almost complete pass-through, in the long run. The high degree of pass-through effects on the prices of Japanese imports was also found at the disaggregated sectoral level: food, raw materials, apparel, manufacturing and machinery. However, further analysis indicates that, the high pass-through effects were mainly attributed to China's peg to the US dollar policy and that the dollar is used as a dominant invoicing currency for China's exports to Japan. The estimated low pass-through effects suggest that, a moderate appreciation of the yuan would have very little impact on China's exports.
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Acknowledgements
The author thanks two anonymous referees for their valuable comments and is grateful for helpful comments from Shinichi Fukuda, YongSeung Jung, Takashi Kihara, Mario Lamberte, Thorbecke Willem, Wing Thye Woo and other participants at the AEA meeting in Atlanta and ADBI seminar. The final draft was finished when the author was a visiting researcher of ADBI. The research is partially supported by a research grant of Japan Society for Promotion of Science (No. 21530214).
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Xing, Y. The Yuan's Exchange Rates and Pass-through Effects on the Prices of Japanese and the US Imports. Comp Econ Stud 52, 531–548 (2010). https://doi.org/10.1057/ces.2010.21
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DOI: https://doi.org/10.1057/ces.2010.21