The Studies On The Characteristics And The Influencing Factors Of Price Fluctuation In China

Price fluctuation has always played an important role in both economic development and social stability. China’s Price System has already succeeded in transformation to market economy from planned economy since 1978. However, during the process of prices reform over past three decades, our economy suffered a lot, though prices in every realm have gradually been more connected with market force by which all the industries have become prosperous. As economy globalization goes further, the whole world economy operation environments turn to be more and more complex. Under this circumstance, maintaining the stability of domestic prices becomes one of the most important goals for our government and central bank, and consequently researches of tools, timing and efficiency of the corresponding policy pack turn out to be very important and valuable in order to attain the goals. Through collecting and studying a mass of references home and abroad, this paper deals with the researches on the characteristics and the influencing factors of price fluctuation in China by using international frontier theoretical and empirical method research method and employing corresponding statistic data. The several issues discussed in this paper are inflation expectation, reasons that lead to domestic prices fluctuation and influence on the rest of the economy, effects of regulation and control of monetary policy and the establishment of price climate index, and at last relevant policy suggestions are put forward. The main research works are as follows:Firstly, based on the new Keynesian sticky information Phillips curve theory, this paper estimates the inflation expectation series of China by building a VAR-based model in an iterative way and then constructing out-of-sample forecasts of inflation with the model. Researches in inflation expectation have a long history in western economic field because inflation expectation is such an important factor that it does not only lead to inflation, but also leads to large bubbles in stock and real estate markets. Based on the achievements in this field in the past and the specific features of price fluctuations in China, this paper, from the perspective of optimal pricing-setting, builds a VAR-based model, guided by new Keynesian sticky information framework, in an iterative way by selecting 10 macroeconomics indicators as a whole factors set namedΩwhich can stands the extent to which macroeconomics takes effect on prices and estimates an inflation expectation series of China by constructing out-of-sample forecasts of inflation. The results reveal that the differences between history trends of consumer price index, always a benchmark of inflation, and inflation expectation are comparatively small, and yet the gaps between the two series vary at different time. The inflation expectation is lower than the inflation when prices rise, and on the contrary, the inflation expectation is higher than the inflation when prices fall.Secondly, this paper applies logistic smooth transition regression (LSTR) models to depict dynamic trajectory of inflation rateπt(Q) and its influencing factors and the estimation results show that the factors of economic fluctuation, inflation expectation and monetary policy all have a significant nonlinear effect on the domestic price fluctuation. According to the nonlinear test of inflation, monetary policy, inflation expectation and economic fluctuation, it shows that the fitting effect of nonlinear LSTR model is better than that of linear regression model. In order to measure different effects of different monetary policy tools, this paper builds LSTR models with 1～3 year loan interest rate named r and rate of money supply of narrow sense Ml named M1r, respectively. The estimation results suggest threshold value of the model which pick up interest rate, r, as monetary tools, is 2.8% and the threshold values of the latter model is 3.9%.By means of comparing and analyzing the effects of interest rate and M1r on inflation, we find:if the inflation expectation is less than 2.8%, decreasing money supply of narrow sense (M1) can inhibit inflation; if the inflation expectation is among a range of 2.8%-3.9%, both increasing interest rate and decreasing money supply of narrow sense (M1) are disinflationary; if inflation expectation is larger than 3.9%, interest rate has significant influence on inflation.Thirdly, the paper builds a factor-augmented vector autoregressive (FVAR) model by using the price indices in various fields and some macroeconomic indicators which are closely related to price fluctuations so as to obtain the response effect of price fluctuation to other influencing factors innovation. From 31 macroeconomic factors which are related to prices and 17 price indices, the paper extracts 4 macroeconomic factors and 2 price factors with the method of factor analysis to build factor-augmented vector autoregressive model (FAVAR model).The model results show that:(1) Monetary policy is still effective instrument to control price rises, but it is necessary to select corresponding countermeasures for different objects and targets. (2) The events of the rational pattern of economic structure, the policy adjustment of import and export, the international trade and the economic growth, will not induce a serious inflation. (3)Large swings in capital markets will lead to price fluctuations in the production realm in the long term and especially, domestic house prices have an important positive impact on prices. (4) The analysis of influencing factors of prices from angles of relationships between upstream and downstream prices, food prices, monetary policy and international commodity prices is so diverse and complicated that it’s wise for us to take this effective empirical method of FAVAR model based on large amounts of data.Fourthly, this paper constructs the price composite index and monitors an early warning signal system on price in China based on business cycle theory, and analyzes and forecasts the price trend by utilizing the econometrical model. The paper filters out coincident indicators group and the leading indicators group with the benchmark of the consumer price index, from the large amounts of macroeconomic indices related to prices, and then composes price composite indices- including the leading price composite index and price coincident composite index- with the international mainstream method of business cycle studies. According to "Valley～Valley" corresponding rule in the business cycle theory, it shows that our country has already experienced three round of full circles and has been in an expansion phase of price cycle since July,2009.In addition, this paper selects 8 indices to construct monitor early warning signal system on prices in China. The results show that the trend of early warning composite index is similar to that of price coincident composite index and early warning composite index is an effective tool of monitoring price fluctuation because it’s sensitive to reflect cyclical changes of prices and it can show the state of price level explicitly.By applying the international forward price-setting theory and empirical research methods, this paper studies the issue of price fluctuation in China from angles of characteristics and influencing factors of price fluctuation. The researches in this paper will benefit the understanding of the transformation mechanism of the price fluctuation, inflation expectation and the effects of monetary policy in China. The paper can also provide some specific research conclusions, especially in a quantitative way, and corresponding advices to make proper policies to ensure the healthy and harmonious development of price level for the central bank. Therefore, this paper has both important theoretic value and practical significance.