Studies On The Dynamics Of Inflation Rates And Inflation Targeting

Inflation is an important economic phenomenon which has aroused wide public concern in the process of economic development.Since the steady operation of macro economy and property are affected by inflation,maintaining low inflation rate and stability of prices has always been important macro-control targets.As a new policy framework for controlling inflation,inflation targeting is focused by both academia and policymakers.However,when we took a deep dive we realized that more researches on inflation targeting were needed.Such as what are the associations between actual output,economic growth,balance of payments and inflation targeting? What is the association of inflation targeting and financial stability? And can inflation targeting be implemented in China at present? If it can what is,prospected effect? In the study,not only the characteristics of dynamic inflation was analyzed,the associations between inflation targeting and inflation dynamics were also studied combined with the current conditions of China's market-oriented economy.Furthermore,we deeply understood the connotation and significance of inflation targeting,and analysis of feasibility and actual effectiveness were performed according to China's national conditions.There are six chapters in the thesis.In the first chapter,the definition and classification of inflation targeting were first introduced,and then the concepts of core inflation and inflation dynamics,followed by the current research situations of inflation targeting.In this part,it was concluded that inflation could be efficiently controlled by inflation targeting to stabilize price.Chapter One was aimed to introduce about the theory of inflation targeting,and also the academic issues of inflation targeting and dynamic inflation.In the second chapter,we analyzed how inflation targeting was implemented in developed market economy countries and in emerging market economies.It was concluded that there were a great of flexibility and adaptability of inflation targeting on account of uncertainties in the environment of economic development;and also,the transparency of the inflation targeting could efficiently stabilize the public expects and make price in a reasonable range.We found that the implementation of inflation targeting was not hindered by strict prerequisites,and it could be being perfected in the process of implementation.In China,it maybe not suitable for full implementation of inflation targeting,flexible inflation targeting could work when using the experience of other countries for reference.In the third chapter,we analyzed associations of inflation targeting and financial stability,and associations of inflation targeting and economic contraction.Firstly,a controlled target value was ascertained as target value of rate of inflation and then analyzed the variability of actual rates of inflation in China.In the conclusion,inflation targeting could help monetary authorities to establish reasonable expectations in the public,effectively reduce the irrational financial behavior of individuals,and maintain a stable inflation rate,thereby promoting the financial stability of the entire financial system.We also found that the reasons of inflation targeting failed to fully replace the existing system was less of experience in inflation targeting when combined with China's market economy.Inflation targeting could play a role in regulating the inflation rate and the exchange rate in some extent.In stages of implementation,monetary policy adjustment should be flexible by fully considering the current situation of China's market economy,and combining the current trend of financial globalization,and using the experience of other countries for reference.In the next chapter,we conducted corresponding empirical analysis.In the fourth chapter,in order to describe the complexity and dynamic process of the multistage inflation rate cycle,we set up a vector error correction model MS-VEM model with Mark off district system transfer.The dual zone system and the three zone system were used to describe the two-stage of inflation rate fluctuation,and the threestage of GDP growth rate and inflation rate of China,separately.The following important conclusions are obtained by the division of the district system and the analysis of dynamic characteristics combined with actual background: there are distinctive features of three district system in economic cycle of China,as "high speed growth","low speed growth" and "appropriate speed growth";at present,it is in the stage of “appropriate speed growth” in China,and the growth of economic is effectively combined with the inflation cycle.Inflation targeting significantly impacts on inflation cycle and economic growth cycle of China.In the fifth chapter,we used UCSV model and UCSVO model to decompose inflation targeting,and it had been divided into two parts,as core inflation and noncore inflation,which represented persistent components and volatile components,separately.In order to effectively eliminate the temporary fluctuations in inflation targeting,we introduce time-varying abnormal factors in the model to accurately describe the abnormal fluctuations.The main contents of this chapter were as follows: first of all,UCSVO model was first applied to the estimation of core inflation,which accurately depicted the characteristics of fluctuating agglomeration of inflation.This model was more precise than the traditional Calman filtering model to describe the characteristics of core inflation.Secondly,temporal variation factor was incorporated into UCSVO model to identify abnormal values of inflation targeting.This new model made core inflation more accurate for fitting the potential inflation trend.Finally,the evaluation methods of core inflation were carefully reviewed in this chapter.Core inflation indicators were evaluated by aspects of descriptive statistical analysis,potential inflation expectation and attractor test.It is found that UCSVO model was better than UCSV model.In this chapter,we found a good index in the field of real policy management to make prospective guidance of market expectation and price adjustment in monetary policy based on the establishment of index of core inflation.In the sixth chapter,it was focused on detailed descriptions of correlations of inflation targeting and persistence of inflation.It is valuable for further study in inflation targeting in China by analyzing quarterly data and annual data.At present in China,it is in the period of persistent deflation and remaining weak for CPI.Inflation targeting could be considered to adjust inflation target to alter the persistence of low inflation.If it works,it is good for small bump to the price and stimulate the growth of whole economy.In all,we suggested monetary authorities keep sustained attention on inflation targeting,take more effective monetary policy to stable price.Inflation targeting is an innovative monetary policy in recent years.