Exchange Rate Pass-through in China: A Cost-Push Input-Output Price Model

Relying on a cost-push input-output model for China, we estimate the exchange rate pass-through to both domestic prices and export prices at the industry level. Our empirical results indicate that the decline of the RMB price in the processing exports sector in response to an RMB appreciation is larger than that in the non-processing exports sector, which, in turn, is larger than the decline of the consumer price indexes. Our cross-sector analysis also suggests that exchange rate changes have the lowest impact on prices in capital- and technology-insensitive industries.