梁红 人民币汇率对国内通胀影响的重要性

人民币汇率对国内通胀影响的重要性

China: How significant is the exchange rate 

pass-through effect on CPI inflation? 

Hong Liang， hong.liang@gs.com 

Helen (Hong) Qiao， helen.qiao@gs.com 

+852 2978 1941 

Asia Economics Flash 

July 20, 2007 

GS GLOBAL ECONOMIC WEBSITE 

Economic Research from the GS Institutional Portal at https://portal.gs.com 

    . Both theoretical literature and empirical work suggest exchange rate appreciation could induce downward pressure on domestic CPI via the pass-through effect. 

    . Our estimates show a 10% appreciation of the CNY nominal effective exchange rate will likely reduce CPI inflation by 1.2 percentage points in 1 year and by a cumulative 1.5 percentage points in 2 year’s time. 

    . Therefore, we argue that, besides interest rate hikes and liquidity withdrawal, faster CNY appreciation could also help China combat the rising inflation pressures. 

    . Our Global Economics Team has recommended going short USD/CNY via 2year non-deliverable forwards as #9 in our Top 10 Trades. 

    With the CPI inflation breaching the 4% mark in June, much attention has been focused on what policy adjustments may take place to combat the re-emerging inflation pressures in the economy. 

   Besides interest rate hikes and liquidity withdrawal, questions have also been raised on how much currency appreciation may help this cause. 

    In this article, we examine the pass-through effect of exchange rate changes on domestic prices in China. Both theoretical literature and empirical work suggest exchange rate appreciation is likely to induce downward pressure on domestic CPI inflation. Our estimates show that a 10% appreciation of the renminbi (CNY) nominal effective exchange rate (NEER) will likely reduce CPI inflation by 1.2 percentage points over 1 year and by a cumulative 1.5 percentage points over a 2-year horizon. Therefore, we argue that faster CNY appreciation can help China combat the rising inflation pressures, as well as reduce its external imbalances. Our Global Economics Team has recommended going short USD/CNY via 2-year non-deliverable forwards (NDF) as #9 in our Top 10 Trades (see Top 10 Trade #9: Go short $/CNY via a 2-year NDF, Global Viewpoint, July 19, 2007). 

    Exchange rate pass-through to domestic prices 

    The degree to which changes in the exchange rate pass through to domestic prices is an important issue in the discussion about the appropriate monetary and exchange rate policies. For instance, currency appreciation tends to reduce import prices expressed in local currency terms, which in turn may be passed through to final consumer prices and thereby reduce CPI inflation. Empirical studies have found such exchange rate pass through to import and consumer prices to be positive but incomplete, and it differs significantly across countries. 

    Exhibit 1: Visible relationship between the exchange rate and CPI inflation in China 

　

    What affects the extent of the pass-through effect? 

    A large economic literature has developed over the past 2 decades on exchange rate pass through. Traditional literature has focused on microeconomic factors, such as the role of market power and price discrimination in international markets.1 An alternative view is advocated by Taylor (2000) who argues that the magnitude of the pass-through effect is also affected by monetary policy because of its impact on inflation expectations.2 Specifically, the exchange rate pass through tends to be higher in a high-inflation environment because firms respond more to cost increases (due to exchange rate depreciation or other factors). Quite a few empirical studies have found evidence supportive of the Taylor hypothesis. 

    Meanwhile, empirical evidence also appear supportive of the hypothesis that the exchange rate pass-through effect is higher for low-income developing economies than for developed economies, either because they tend to have higher inflation rates, or because they tend to have a higher share of tradable goods in their consumption3 (see Box 1 for a discussion on the import content in the consumption basket). 

    1， For a survey of this literature, see P. Goldberg and M. Knetter (1997), Goods prices and exchange rates: What have we learned? Journal of Economic Literature, Vol. 35, pp. 1243-92. 

    2， John Taylor, 2000, Low inflation, Pass-through, and the pricing power of firms, European Economic Review, Vol. 44, pp. 1389 – 1408. 

    3， Corrinne Ho and Robert N McCauley, 2003, Living with flexible exchange rates: issues and recent experience in inflation targeting emerging market economies, BIS working paper, No. 130. 

Box 1: Estimating the import content in domestic consumption 

There is little official or academic research on the degree of import content in the domestic consumption basket for China. Here, we begin with some back-of-the-envelope estimation of this parameter. China’s imports are about 32% of GDP in 2006, and about half of the total imports are used in the processing trade with the final destinations overseas. The remaining part (equivalent of 16% of GDP) serves domestic investment and consumption. Since more imports are likely to be directly consumed for domestic-investment purposes rather than for consumption, we assume a 6:4 split between investment-related vs. consumption-related imports within these domestic-demand oriented imports. That is, goods imported directly for domestic consumption purpose may constitute roughly 6.4% of GDP. If consumption is about 50% of GDP, the direct import content in domestic consumption might be about 13%. Of course, import prices could also indirectly affect consumer prices through their impact on the costs of investment-related goods. 

    Estimation of the exchange rate pass-through for China and other countries 

    Empirical studies have in general found a lower pass-through effect in industrialized economies than that for developing economies. For instance, Choudhri and Hakura (2002)4 estimated the pass-through effect for the U.S. is 0.00, 0.02 and 0.06 over 1, 4 and 20-year horizons and -0.01, 0.02 and 0.03 respectively for the U.K. Their estimated pass-through effect for China is 0.04, 0.30 and 0.41 over 1, 4, and 20 years. Using more recent data, another study by Ca’Zorzi, Hahn, Sanchez (2007)5 finds a 10% exchange rate change will induce an accumulated change in consumer price levels by 0.8% in 1 year and 7.7% in 2 years. 

    Using quarterly data from 1992 to 1Q2007, we estimate that, holding everything else constant, a 10% appreciation of the CNY NEER will on average lead to a 1.2 percentage points reduction in CPI inflation in 1 year, by a cumulative 1.5 percentage points in 2 years, and by 1.6 percentage points in 3 years (please see Appendix for details). Compared with previous studies, our estimates are slightly higher than others’ over the short term, but lower over the long term. 

    Undoubtedly these estimates need to be taken with a few grains of salt. In particular, our estimated pass-through based on data over the past 15 years may under- or over-state the true underlying parameter at the present time because of rapid structural changes in China. For instance, the degree of openness in China, as measures by the share of trade in GDP, has risen to about 67% as of 2006, from 34 % in 1992. The more open a country is, the more significant any exchange rate changes may affect domestic prices through its higher import content in consumption. However, the picture can be more complex as empirical evidence also suggests inflation is negatively correlated with the degree of openness, as the product markets in an open economy may be more flexible and firms more competitive. Nevertheless, even though the underlying parameter may have shifted, we believe both our estimates and other empirical evidence confirm there are some non-trivial, positive pass-through effects between CPI inflation and NEER changes in China, consistent with the evidence others find for other emerging markets. 

    4， Ehsan Choudhri and Dalia Hakura, 2001, Exchange rate pass-through to domestic prices: does the inflationary environment matter? IMF working paper, WP/01/194. 

    5， Michele Ca’Zorzi, Elke Hahn, Marcelo Sanchez, 2007, Exchange rate pass-through in emerging markets, ECB working paper series No. 739. 

    Policy implications 

    The recent upside surprise in growth and inflation data has confirmed our view that there are budding overheating pressures being built in the economy. Given the monetary expansion since 2H2006, as measured by M3 growth,6 we expect sequential CPI inflation to stay elevated for the remainder of the year. We expect the year-on-year reading of the CPI to stay above 4.5% for the rest of this year, and we see upside risks to this forecast (see Real GDP growth came in at 11.9% and CPI inflation 4.4% for June—readings of the 2Q2007 data, China Views, July 19, 2007, and Raising our growth and inflation forecasts for 2007 and 2008, China Views, July 19, 2007). 

    The exchange rate pass-through effect we examined in this article suggests that if the monetary authority in China could allow the currency to appreciate more in trade-weighted terms, it could help “dis-inflate” the economy, while reducing the foreign exchange inflows and facilitating the rebalancing of the economy. 

    Furthermore, recent experiences of currency appreciation in neighbouring economies (such as Korea and India) suggest that bolder currency appreciation, coupled with monetary tightening through higher interest rates, are effective in reining in inflation pressures in the economy while exerting limited negative impact on overall growth. 

    Faster CNY appreciation ahead 

    After some successful “gradual” upward adjustments in the CNY over the past 2 years, it appears the Chinese authorities have already started to increase the pace of appreciation against the USD (see Exhibit 2). We expect the authorities to become bolder in using the currency tool to cool down domestic inflation pressures, and maintain our forecast of 9% appreciation of CNY/USD over 12-months’ time. 

    Our Global Economics Team has therefore recommended going short USD/CNY via 2-year NDF as #9 of our Top 10 Trades. The 2-year NDF is currently standing at about 6.97, implying a less than 8% cumulative appreciation in 2-year’s time. 

Exhibit 2: CNY appreciation has picked up speed since April 2007 

　

     6， See China: M2 growth may have understated the speed of monetary expansion, Asia Economics Flash, July 6, 2007 and China: Why should we care about M3 growth? Asia Economics Flash, July 9, 2007. 

    Appendix: Estimation of the exchange rates pass-through effect 

    We have followed a similar research methodology that adopted by Coudhri and Haura (2001) to examine the pass-through effect. Specifically, we take the log difference of price, exchange rate and output and estimate the following reduced-form equation: 

　

Exhibit A1: Estimation results of the reduced-form equation 

Dependent Variable: DLOG(PRICEINDEX) 

Method: Least Squares 

Date: 07/12/2007 Time: 14:34 

Sample (adjusted): 3Q1992 1Q2007 

Included observations: 59 after adjustments