Research On Inflation Expectation And Its Uncertainty In China

Inflation is the central topic of macro-economic supervision and control.It involves the economic and social stability of a country.Fight inflation is the main target of a country's macroeconomic policy.For a long time,facing to the recurring of continual rise of the commodity price,tight-money policy and increase the supply of products are the primary measures taking by our country.For the remedy effects of these measures,we cannot cope with inflation well.Because of the lag of policy measures,the governance of the inflation problem often cannot reach the expected efficiency.In 2009,the State Council put forward clearly for the first time "the management of inflation expectations" as one important task for macro-control of our country in "12th Five-Year" plan.In 2013,"the Central Committee of the Communist Party of China on several major issues of comprehensive reform decision" contains the future changes in the price level forward-looking management,which is "ex-ante" inflation expectations management concept.Therefore,the management of inflation,regulation and management of inflation expectations have become the focus of the development of the economy in China.The global government and the central bank have formed a consensus on that inflation expectations plays a key role in the process of inflation determination and monetary policy to macroeconomic conduction.Therefore,reasonable estimation and management of inflation expectations is one of the important objectives of the central bank.Inflation expectations affects interest rates,further affects the real economy and the actual inflation and in some extent it will evolve into actual inflation and the formulation of effective monetary policy must be based on the "advance",pay attention to the management of inflation expectations.To guide the public to form a reasonable inflation expectation,to manage inflation expectations,the premise is to understand the expectations of inflation.Analysis on inflation expectations formation mechanism,the measurement method,its uncertainty and the relation to monetary policy,for the central government to formulate and implement effective monetary policy,better to guide the public to form reasonable expectations,to control inflation,promote macroeconomic stability and development has very important theoretical and practical significance.From the point of view of the above,this paper reviews the relevant theory of inflation expectations,combined with the current situation of inflation expectations and uncertainty of the relevant empirical research.Mainly have the following five aspects of the work:First:in reading large about inflation expectations based on the relevant research literature at home and abroad,and based on the problem of this paper,the domestic and foreign scholars about the contents,methods and conclusions of the research of inflation expectations were review.Second:a detailed description of the theory of inflation expectations.From the expected evolution theory and the definition of uncertainty,described in detail the characteristics of inflation expectations;according to inflation is expected to affect the macro economy of the two pathways are presented,and the inflation expectations and the term structure of interest rates and inflation expectations and the Phillips curve relationship and is given based on estimates of inflation expectations for the various methods.Finally,it shows that the main factors affecting the formation of inflation expectations,the impact of inflation expectations on economic life and the foreign inflation expectations management and control experience.Third:with a multi-factor no-arbitrage affine term structure model with latent factors and macro factors and using the maximum likelihood method,we get the different maturities of inflation expectations and the inflation risk premium from the bond yield curve.It's found that,on average,inflation expectations increase over time;fluctuations in short term inflation expectations are greater than the long term inflation expectations.Evolution trend of each term inflation expectations is basically same to the real inflation,the dynamic correlation between the medium and short term inflation expectations and the real inflation is stronger.Compared to the existing single period of inflation expectations,it can bring more reference information and become a useful supplement to the existing inflation expectations.Time-varying inflation risk premium increases over time indicate that investors will demand more interest rate premium due to risk aversion in long-term interest rates.Just because of it,we can neither directly obtain the expected interest rate from the nominal yield curve,nor put forward the long-term average interest rates as long-term interest rates.It also shows that the term structure of interest rates in China's bond market,neither support the pure expectations hypothesis of the term structure of interest rate risk premium is zero,nor support the rational expectations false said" the term structure of interest rate risk premium is constant".Fourth:by the time-varying parameter Markov Regime Switching Model(TVP-MS)and the approximate filtering algorithm,we can capture the uncertainty sources of the financial market inflation expectations.The uncertainty of economic environment,market behavior of enterprises,commodity market,stocks,futures and other capital market,real estate market and international market,the impact of government policy and natural disasters in economic system can be attributed to the factors of impact of supply shocks,monetary policy regime switching and incomplete information of economic structure.To separate out the different sources of uncertainty by econometric model,we define them into two kinds:one is the macro policy level,due to the public on the economic structure,changes in the macroeconomic policy responses to structural inflation uncertainty;another is due to the uncertainty of unexpected economic shocks arising from the impact of inflation expectationsThe study found that the longer the duration of the bonds held by investors,the greater the uncertainty of inflation expectations.Whether high expectation uncertainty mechanism or low expected uncertainty mechanism,the expected uncertainty most from a random disturbance term Markov variance is triggered by the economic impact of uncertainty is main source.Uncertainty in the high mechanism,the higher inflation expectations,and the expected uncertainty is in the low state,the inflation expectations are low.With the increase of the duration,the short-term high uncertainty duration is a little short,the stable duration of the low uncertainty is long,and in the middle and long term,these two conditions are relatively frequent.All of the expectations are not rational expectations,but the medium and long-term inflation expectations are the adaptive expectations.Fifth:the operation of monetary policy plays a very important role in the management of inflation expectations.The operation of monetary policy will be immediately demonstrated in the financial market,the information implied in the Micro-financial structure is an important reference for the policy response to the market.By a vector auto regression(VAR)model and the impulse response function and variance decomposition to analyze relationship among the expected inflation and its uncertainty and he money supply,one year time deposit interest rates,actual inflation.It's found that inflation expectations have strong self realization and viscous characteristics;uncertainty has great effect on inflation expectations;inflation expectations are important reasons lead to inflation;the impact on inflation expectations by increase of the broad money supply is not significant;interest rate shocks have significant impact on the inflation expectations,and fluctuations in the exchange rate impact on inflation expectations,to a lesser extent.In general,the fluctuation of exchange rate,interest rate and the increase of money supply have certain impact on the expected uncertainty,but the influence is limited.In reference to the experience of foreign inflation expectations management and control,combined with China's national conditions,China's inflation expectations are given some policy recommendations..The innovation of this paper lies in:1.Combining macro-economy and micro-finance,by a multi-factor no-arbitrage affine term structure model with macro factors,we get the different maturities of inflation expectations and the inflation risk premium from the bond yield curve.Compared with the existing single term inflation expectations,inflation expectations from the bond yield curve more flexible,with different of forms,can become a useful supplement to the existing estimates of inflation expectations and inflation expectations index.Time-varying inflation risk premium reflect the risk of compensation to the market participants which brought about by the expected future uncertainty;at the same time that the pure expectations hypothesis of the risk premium is zero and the rational expectations hypothesis of risk premium constant conclusion of China's bond market is not established.2.Depicting dynamic changes in inflation expectations by the time-varying parameter Markov Regime Switching Model(TVP-MS),we get the different sources of uncertainty of China's bond market inflation expectations.To separate out the different sources of uncertainty by econometric model,the uncertainty of economic environment,market behavior of enterprises,commodity market,stocks,futures and other capital market,real estate market and international market,the impact of government policy and natural disasters in economic system can be attributed to the factors of impact of supply shocks,monetary policy regime switching and incomplete information of economic structure,we define them into two kinds:one is the macro policy level,due to the public on the economic structure,changes in the macroeconomic policy responses to structural inflation uncertainty;another is due to the uncertainty of unexpected economic shocks arising from the impact of inflation expectations3.By studying the relationship among the inflation expectations and its uncertainty and actual inflation,monetary policy,in order to get the enlightenment of guiding the public to form reasonable expectations,lower expectations uncertainty,better regulation and control inflation and stable economic development.The relationship among inflation expectations and uncertainty and the actual inflation give an indirect evidence of the effectiveness of monetary policy;the impact on inflation expectations and uncertainty by changes of money supply and interest rate directly show the effect of monetary policy operation.Study on the different levels of inflation expectations and its uncertainty,we can provide a targeted differentiation theoretical basis for the control of inflation expectations.