# A Study on the Pass-Through Rate of the Exchange Rate on the Liquid Natural Gas (LNG) Import Price in China

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## Abstract

**:**

## 1. Introduction

## 2. Previous Studies

## 3. Materials and Methods

#### 3.1. Unit Root and Cointegration Test Method

#### 3.2. TVR-VAR Model

#### 3.3. Impulse Response Function

#### 3.4. Data

## 4. Results

#### 4.1. Unit Root and Cointegration Tests

#### 4.2. MCMC Estimation Results

#### 4.3. Results of the Impulse Response Analysis

#### 4.4. Pass-Through Rate Results

## 5. Discussions

## 6. Conclusions

## Supplementary Materials

## Author Contributions

## Funding

## Conflicts of Interest

## References

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**Figure 1.**The plots of CNY ($\mathrm{E}{1}_{\mathrm{t}}$), JPY ($\mathrm{E}{2}_{\mathrm{t}}$ ), crude oil (${\mathrm{PJ}}_{\mathrm{t}}$ ) and LNG import (${\mathrm{PL}}_{\mathrm{t}}$) prices from August 2005 to September 2018.

**Figure 2.**The sample autocorrelation function (upper), sample path (middle), and posterior probability density function (bottom) of TVP-VAR parameters. ${\mathrm{s}}_{\mathrm{b}1}$, ${\mathrm{s}}_{\mathrm{a}1}$, and ${\mathrm{s}}_{\mathrm{h}1}$ are error terms of the original time-varying parameters based on the first ${\mathrm{n}}_{0}$ sub-samples. ${\mathrm{s}}_{\mathrm{b}2}$, ${\mathrm{s}}_{\mathrm{a}2}$, and ${\mathrm{s}}_{\mathrm{h}2}$ are error terms of the original time-varying parameters based on the last ${\mathrm{n}}_{1}$ sub-samples. The vertical axis of the upper figure is the sample autocorrelation, and the horizontal axis denotes the number of iterations. The vertical axis of the middle figure is the sample path and the horizontal axis is the number of iterations. The vertical axis of the bottom figure is the posterior probability density and the horizontal axis is the deviation from the average.

**Figure 5.**3D impulse response functions. This is a 3D diagram created using MATLAB R2016a software. The upper part represents the impulse response function $\left(\mathrm{E}1\to \mathrm{P}\mathrm{L}\right)$ of the Chinese LNG import price for the CNY E1, and the lower part represents the impulse response function $\left(\mathrm{E}2\to \mathrm{P}\mathrm{L}\right)$ of the Chinese LNG import price for the JPY E2. The X-axis (year) represents each time point at the data period, the Y-axis (section) represents the time elapsed from the shock (0–16), and the Z-axis represents the response size (post-shock mean).

**Figure 6.**Changes in the pass-through rate for the CNY $\left(\mathrm{E}{1}_{\mathrm{t}},{\mathrm{PL}}_{\mathrm{t}},{\text{}\mathrm{PJ}}_{\mathrm{t}}\right)$ and JPY $\left(\mathrm{E}{2}_{\mathrm{t}},{\mathrm{PL}}_{\mathrm{t}},{\text{}\mathrm{PJ}}_{\mathrm{t}}\right)$.

Steps | Detail of Steps |
---|---|

1 | Set the initial value of $\mathsf{\beta},\mathsf{\alpha},\mathrm{h},\mathsf{\omega}$. |

2 | Sampling from $\mathsf{\beta}|\mathsf{\alpha},\mathrm{h},{\mathsf{\Sigma}}_{\mathsf{\beta}},\mathrm{Y}$. |

3 | Sampling from ${\mathsf{\Sigma}}_{\mathsf{\beta}}|\mathsf{\beta}$. |

4 | Sampling from $\mathsf{\alpha}|\mathsf{\beta},\mathrm{h},{\mathsf{\Sigma}}_{\mathsf{\alpha}},\mathrm{Y}$. |

5 | Sampling from ${\mathsf{\Sigma}}_{\mathsf{\alpha}}|\mathsf{\alpha}$. |

6 | Sampling from $\mathrm{h}|\mathsf{\beta},\mathsf{\alpha},{\mathsf{\Sigma}}_{\mathrm{h}},\mathrm{Y}$. |

7 | Sampling from ${\mathsf{\Sigma}}_{\mathrm{h}}|\mathrm{h}$. |

8 | Back to step 2. |

Variables | Level Data (t-Value) | First Difference Data | ||||
---|---|---|---|---|---|---|

ADF | PP | KPSS | ADF | PP | KPSS | |

E1 | −1.29 | −2.43 | ${0.98}^{\text{}*}$ | $8.04{\text{}}^{*}$ | $-6.71{\text{}}^{*}$ | 0.63 |

E2 | −0.16 | −1.34 | $0.31$ | $3.06{\text{}}^{*}$ | $-9.68{\text{}}^{*}$ | 0.18 |

PL | −0.34 | −2.45 | $0.71{\text{}}^{*}$ | $-5.85{\text{}}^{*}$ | $-22.49{\text{}}^{*}$ | 0.09 |

PJ | −0.46 | −2.19 | $0.26$ | ${8.48}^{\text{}*}$ | $-{5.58}^{\text{}*}$ | 0.07 |

**Table 3.**Results of the Johansen cointegration test for CNY$\text{}\left(\mathrm{E}{1}_{\mathrm{t}},{\mathrm{PL}}_{\mathrm{t}},{\text{}\mathrm{PJ}}_{\mathrm{t}}\right)$.

Rank Number | Trace Test Statistic | 0.01 Critical Value | p-Value | Maximum Eigenvalue Test Statistic | 0.01 Critical Value | p-Value |
---|---|---|---|---|---|---|

None | $31.38{\text{}}^{*}$ | 35.46 | $0.03$ | $16.00$ | 25.86 | $0.22$ |

At most 1 | $15.38$ | 19.94 | $0.05$ | $10.94$ | 18.52 | $0.15$ |

At most 2 | $4.44{\text{}}^{*}$ | 6.63 | $0.03$ | $4.44{\text{}}^{*}$ | 6.63 | $0.03$ |

**Table 4.**Results of the Johansen cointegration test for JPY$\text{}\left(\mathrm{E}{2}_{\mathrm{t}},{\mathrm{PL}}_{\mathrm{t}},{\text{}\mathrm{PJ}}_{\mathrm{t}}\right)$.

Rank Number | Trace Test Statistic | 0.01 Critical Value | p-Value | Maximum Eigenvalue Test Statistic | 0.01 Critical Value | p-Value |
---|---|---|---|---|---|---|

None | $24.02$ | 35.46 | $0.19$ | 12.04 | 25.86 | $0.54$ |

At most 1 | $11.98$ | 19.94 | $0.16$ | 7.29 | 18.52 | $0.45$ |

At most 2 | $4.68{\text{}}^{*}$ | 6.63 | $0.03$ | $4.68{\text{}}^{*}$ | 6.63 | $0.03$ |

**Table 5.**Estimation results of the TVP-VAR model parameters on the CNY$\text{}\left(\mathrm{E}{1}_{\mathrm{t}},{\mathrm{PL}}_{\mathrm{t}},{\text{}\mathrm{PJ}}_{\mathrm{t}}\right)$.

Parameter | Average | Standard Deviation | 95%Credit Section | CD | Inefficiency Factor |
---|---|---|---|---|---|

${\mathrm{s}}_{\mathrm{b}1}$ | 0.023 | 0.003 | [0.018, 0.029] | ${0.422}^{\text{}*}$ | 9.160 |

${\mathrm{s}}_{\mathrm{b}2}$ | 0.021 | 0.002 | [0.017, 0.025] | $0.594{\text{}}^{*}$ | 6.650 |

${\mathrm{s}}_{\mathrm{a}1}$ | 0.082 | 0.032 | [0.043, 0.163] | $0.38{\text{}}^{*}$ | 70.690 |

${\mathrm{s}}_{\mathrm{a}2}$ | 0.074 | 0.026 | [0.040, 0.140] | ${0.165}^{\text{}*}$ | 51.010 |

${\mathrm{s}}_{\mathrm{h}1}$ | 0.610 | 0.132 | [0.385, 0.901] | ${0.009}^{\text{}*}$ | 41.910 |

${\mathrm{s}}_{\mathrm{h}2}$ | 0.686 | 0.168 | [0.397, 1.063] | $0.147{\text{}}^{*}$ | 56.460 |

**Table 6.**Estimation results of the TVP-VAR model parameters on the JPY$\text{}\left(\mathrm{E}{2}_{\mathrm{t}},{\mathrm{PL}}_{\mathrm{t}},{\text{}\mathrm{PJ}}_{\mathrm{t}}\right)$.

Parameter | Average | Standard Deviation | 95%Credit Section | CD | Inefficiency Factor |
---|---|---|---|---|---|

${\mathrm{s}}_{\mathrm{b}1}$ | 0.023 | 0.003 | [0.018, 0.028] | $0.542{\text{}}^{*}$ | 9.360 |

${\mathrm{s}}_{\mathrm{b}2}$ | 0.022 | 0.002 | [0.018, 0.028] | $0.154{\text{}}^{*}$ | 5.170 |

${\mathrm{s}}_{\mathrm{a}1}$ | 0.068 | 0.022 | [0.039, 0.125] | ${0.912}^{\text{}*}$ | 41.420 |

${\mathrm{s}}_{\mathrm{a}2}$ | 0.063 | 0.019 | [0.038, 0.124] | $0.432{\text{}}^{*}$ | 78.930 |

${\mathrm{s}}_{\mathrm{h}1}$ | 0.246 | 0.084 | [0.124, 0.458] | $0.879{\text{}}^{*}$ | 72.560 |

${\mathrm{s}}_{\mathrm{h}2}$ | 0.613 | 0.171 | [0.331, 1.001] | ${0.214}^{\text{}*}$ | 89.370 |

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**MDPI and ACS Style**

Tang, C.; Aruga, K.
A Study on the Pass-Through Rate of the Exchange Rate on the Liquid Natural Gas (LNG) Import Price in China. *Int. J. Financial Stud.* **2020**, *8*, 70.
https://doi.org/10.3390/ijfs8040070

**AMA Style**

Tang C, Aruga K.
A Study on the Pass-Through Rate of the Exchange Rate on the Liquid Natural Gas (LNG) Import Price in China. *International Journal of Financial Studies*. 2020; 8(4):70.
https://doi.org/10.3390/ijfs8040070

**Chicago/Turabian Style**

Tang, Chaofeng, and Kentaka Aruga.
2020. "A Study on the Pass-Through Rate of the Exchange Rate on the Liquid Natural Gas (LNG) Import Price in China" *International Journal of Financial Studies* 8, no. 4: 70.
https://doi.org/10.3390/ijfs8040070