Theoretical And Empirical Research On Core Inflation In China

Core inflation is the sustained trend component of inflation in the long term.It reflects the trend of inflation in the future. Therefore, it is important significance to judge the economic situation and formulate macroeconomic policy. At present, in most of the western developed countries, the central banks have announced a core inflation index.But our country has not yet been implemented. So further research on core inflation theory on China’s economic policy validity are the most important.At present, there are generally two branches of the research on core inflation. one is that from a macro point of view, core inflation is directly obtained by the statistical identification technique from the CPI index. This study usually take inflation into the main trend component as core inflation, and less important component. So we can get the required core inflation through using all exponential smoothing identification technique and trend identification technique. Now, the theory research on core inflation in China are more concentrated in this field.The another study is that the core inflation index is reconstructed on the microeconomics foundations of the formation from the price index. This research often think that sticky prices constitute the core trend og inflation. But the CPI index weighted by the consume expenditure share, did not fully consider the influence of price stickiness. Therefore, the research which is based on the new Keynes sticky price theory as the foundation, take full account of the impact of price stickiness, form microeconomics foundations of core inflation index by using DSGE model, obtains a set of optimal weights, which is used to recalculated the core inflation index. But research in our country is not involved in this branch. Therefore, the further efforts is needed to make up for the gap and catch up with and surpass.In the former branch, some papers studied how to obtain core inflation by using identification technique of BQ in the multivariate VAR model(identification technique of Blanchard and Quah tr in short). However, because of the one-sided understanding of identification technique of BQ, so that there are some deficiencies in some literature research.This thesis comprehensively introduces the practical application of identification technique of BQ. And conclusion: two dimensional identification technique of BQ is fully solvable. But the multivariate identification technique of BQ is often not the normal solution.Because of no solution of the multidimensional identification technique of BQ, some literature used Cholesky decomposition as the auxiliary to obtain the core inflation on identification technique of BQ. This thesis proves that this is wrong. They are two different assumptions, if they both are used,it will cause the failure of BQ decomposition.In the empirical study, the thesis first introduced the "transitional conditions" of the two dimensional identification technique of BQ, and obtain several core inflation curves.This article conclude from the comparison analysis that the effectiveness of identification technique of BQ depends on experiences simulated by VAR model,which ia basically the same with situations experienced in the real economy, or large deviation.Because the multidimensional identification technique of BQ can not be normal solution,this thesis first try to introduce the calibration to solve this problem, and successfully obtain core inflation. Econometric test shows that, it can satisfy the basic requirements of theory and practice. It shows that the calibration is reasonable and applicable.This thesis also fills up the blank of the research of the new accounting of China’s core inflation index through using the DSGE model from the microeconomics foundations of the price index.This research hope to achieve a breakthrough on the basis of previous research, and the contribution to the research in this field in our country. However, the inadequacies,please exhibitions, a lot of tolerance.