Calculate the Exchange Rate Pass-Through of RMB by Using Disaggregated Data

In this paper, I analyze the impact of the RMB's exchange rate fluctuations on export/import prices index, in other words, the RMB's exchange rate pass-through rate. Existing empirical studies estimating the exchange rate pass-through based on the aggregated of RMB's exchange rate data. However, these approaches have some major drawbacks. Because different major trading partners have different comparative advantage products to trade, using the aggregated effective exchange rate is not necessarily appropriate. For this reason, I calculate the “Nominal Effective Exchange Rate of RMB's in Sector (based on the export/import weight)” to verify the relationship between the exchange rate and the export/import prices index. The results reveal that the exchange rate shock on the export/import prices index is different from using aggregated data and disaggregated data.