Inflation Volatility, Uncertainty And Macroeconomic Performance

Inflation is one of the eternal themes of macroeconomics. As a monetary policy of our government, as well as the important macroeconomic policy-related indicators, inflation's causes and future direction of the formation of is not only related to the sustainability of China's economic growth and stability, but also related to the level of benefits of our residents. The reason is that given the same conditions of income in the currency, the welfare of the residents of a country level, to a large extent will be affected by the price changes of consumer goods. At the same time, as a complex and integrated economic indicators and the actual output, money supply, as well as macroeconomic indicators such as stock returns and other financial indicators, the inflation is closely linked to the stability of a country's economy and has an important impact on the effective allocation of resources. Research related to inflation, whether in theory or empirical analysis has accumulated a great deal of research results. The reason of why economists often used to study inflation is that, on the one hand, as a complex economic phenomena comprehensive the study has an important theoretical and practical significance, on the other hand, its own reflection of price changes and uncertainties will continue to attract the economics to explore its characteristics and the inherent volatility of the causes.In this paper, based on both the theory and empirical research at home and abroad, the volatility of inflation and inflation uncertainty is the core content of the study, focusing on quantitative methods of China's inflation volatility, persistence and uncertainty. And we did in-depth analysis and testing the dynamic features and formation of inflation volatility in the path of China's economic process on China's economic growth and the impact of volatility in the financial market, with a view to better understanding of the mechanism of China's inflation mechanism and providing a reference for China's the implementation of effective macro-control.In Chapter 1, we introduced the process of research and literature review the fluctuations in the inflation rate. First of all, we introduced the definition and sorts of inflation, and then, respectively, we reviewed the foreign literatures and internal documents. In addition, this paper also describes the main structure and main contents, and innovations in this article.In Chapter 2, we introduced theory and models of inflation in the currency and the rational expectations school, Keynesian, New Keynesian and Post-Keynesian and structural inflation school, and did a comparative analysis of models, which provided a theoretical evidence to support the following chapters and make it the core of the theoretical part of this article.In Chapter 3, we gave the empirical analysis and measurement of test applications of the timing of China's inflation rate and the dynamic characteristics of it, using the Chow statistics, CUSUM tests, CUSUM square test and the Bai and Perron (1998, 2003) which can test structural change in the situation of China's inflation rate. And then we use a more reasonable three districts of the Markov model to describe the transfer system and verify the dynamics characters of the inflation rate in China, which demonstrated that there was a significant process of "deflation zone system", "Inflation Zone" and "moderate zone currency system". In addition, with the estimation and simulation of the District of Markov Switching model, we have found that our country has experienced two high inflation, and from 2007 to the present, China's inflation rate are still in the "moderate zone currency system", but the rate of inflation has been a slight change in trend. Thus, for the current situation of inflation in our country, we must adopt a "Discretion" macro-control policy to stabilize the price level in China to curb the resurgence of high inflation, at the same time to prevent the emergence of deflation.In Chapter 4, based on the GARCH family models for measuring the time-series characteristics of the fluctuations, we use the ARFIMA-FIGARCH model to test the time-varying volatility of China's inflation rate and the double long memory characters. We found that there are significant long-term memory characters in China's average rate and fluctuations of inflation. Furthermore, we use STARIMA model with smooth migration during structural changes to test the inflation rate in China after the long memory and we revealed that there are relatively smooth processes of structural changes in the inflation rate. When the inflation rate for the transfer of variables are at the time of high inflation, it tends to contain high inflation to accelerate the process of production, but high inflation continued to accelerate the high inflation during the period of short duration, and the inflation rate in its own structural change has been slow, with moderate asymmetric adjustment.Chapter 5 tested the relationship between China's inflation rate and inflation uncertainty by using the Granger causality test methods and GARCH-M model. We found that the high inflation rate will lead to higher inflation uncertainty, supporting the Friedman hypothesis, at the same time, higher inflation uncertainty will also be a situation exacerbated by high inflation. And the public's sensitivity to inflation uncertainty on inflation is higher during the deflationary period, which means that policy-makers should focus to guide the public's expectations of future inflation in deflation than in inflation in order to maintain the social stability.In Chapter 6, under the VAR framework, we analyses the effects of international oil price shocks and food price shocks on China's inflation on the application of impulse response function, and we also use the variance decomposition method to study the causes of inflation. We found that China's inflation is not simply the cost-push inflation or demand-pull inflation, but the mixed combination of inflation with the structural inflation and imported inflation. In addition, the greatest impacts on the CPI are the lags of CPI (inflation viscous), indicating that restraining the rising inflation trend is the fundamental way to slow China's currency situation.In Chapter 7, we test the relationship of China's inflation rate and real output growth rate by using cointegration theory and error model, as well as bivariate DCC-GARCH model in combination with methods of Granger causality test. We found that there is a positive correlation between China's inflation rate and the actual economic growth rate, which means that the high rates of inflation to some extent, promotes China's economic growth. Finally, based on the fact that there are several structural changes in China's inflation rate and the path of nominal interest rates time series, we tested the "Fisher effect" by using the subparagraph cointegration test method. We found that there is no significant "Fisher effect" in China's economic operations, which may make monetary policy difficult to achieve the desired goal, or even result in the weak effect of an expansionary monetary policy, then reduce the nominal stimulation effect on demand. Therefore, it is very important to strengthen the response of the inflation to the interest rate level.