Dynamic Characteristics And Management Of Inflation Expectations In China

Since the outbreak of the US subprime mortgage crisis that swept the world in 2008,the global economy has entered a downward range,and China's economic growth has slowed significantly.Many economic structural problems hidden behind the rapid economic growth have gradually been exposed.After undergoing several rotations between the "anti-inflation" and "guaranteeing growth" macro-control targets from 2008 to 2011,maintaining high-speed economic growth,adjusting the structure of economic development,changing the mode of development,maintaining price stability,and preventing economic structural risks have become the core macroeconomic targets,and since 2011,monetary policy has entered an overall prudent and timely pre-fine-tuning policy cycle.Subject to macro-control measures and objectives,under the "new normal" period of economic development,a stable monetary policy cannot be flexible enough to adjust for inflation.It can only use "fine-tuning" to resolve the structural risks of inflation.As a result,inflation pressure has been accumulating,which has become one of the biggest sources of uncertainty in the economic system in the near future.In this situation,it is an urgent task to find an alternative tool of monetary policy suitable for inflation management for the central bank.As a leading indicator of inflation,inflation expectation is inextricably linked with inflation.It has been proved to be a feasible way to manage inflation indirectly by management of inflation expectation in many countries in theory and practice.Considering that inflation expectation is a kind of economic index which will be affected by the public's subjective psychological characteristics as well as the objective economic system,the experience of inflation expectation management in foreign countries does not accord with the psychological characteristics of the Chinese,so it cannot be used to guide our practice.At present,China has not established a systematic management system of inflation expectation and lacks sufficient experience in inflation expectation management.On one hand,there is an increasingly urgent need for effective management of inflation expectations,on the other hand,there are deficiencies in the practical experience and theoretical basis of inflation expectation management.In this context,it is of great significance to re-examine the target,tools and effects of inflation expectation management,explore the dynamic characteristics and effective management methods of inflation expectation in China through theoretical and empirical analysis.This paper studies the dynamic characteristics of inflation expectation and inflation expectation management in China from following six aspects:Firstly,this paper systematically introduces the formation mechanism,dynamic characteristics and relevant theoretical basis of inflation expectation management,and on the basis of theoretical review and literature review,briefly reviews the practical experience of some countries in the measurement and management of inflation expectation.Although these experiences cannot be fully applied to China's national conditions,they can provide some references for the establishment of China's inflation expectation management system.Secondly,important progress has been made in the theoretical research and model analysis of the identification and component decomposition of inflation expectation periodicity driving factors.Based on variance decomposition,spectrum analysis,VAR model,EMD analysis and other methods,this paper studies the periodicity of inflation expectation.The results show that the inflation expectation has obvious periodicity characteristic,the period is divided into long period and short period,the long period is 12.5 quarters,the short period is 4 quarters.In addition,the price of food,tobacco and alcohol has the most obvious influence on the inflation expectation,furthermore,some non-price factors show a periodicity characteristic similar to the inflation expectation.Both short-term and long-term inflation expectations are related to the indicators of foreign exchange reserves and the effective exchange rate index of the RMBThirdly,based on the New Keynes-Phillips curve,this paper establishes the spatial panel Durbin model(SDM model)to investigate the spillover effects of inflation expectations at the provincial level in China.The results show that for one province,the transition from inflation expectation to inflation is not random or independent,it is also affected by inflation expectations in geographically or economically adjacent or close provinces.That is to say,the increase of inflation expectation in one province will affect the inflation level of this province and the surrounding provinces.The New Keynesian Phillips Curve with forward looking and backward pricing factors is also applicable at the provincial level in our country,that is to say,there is a significant positive correlation among inflation and inflation first-order lag items,output gap and inflation expectations.The spillover effects of inflation expectations,output gaps,and disposable income per capita are all positive both in the long run and in the short run.These factors have a stable and positive impact on inflation,and the impact of these factors on neighbor province is greater than the impact on one province.Fourthly,based on China's provincial inflation expectation panel data,this paper analyzed the threshold effect between regional inflation expectations and economic development.The results show that first there is a non-linear relationship between inflation expectation and economic growth in china's provincial economic operation;second,there is a double threshold effect between inflation expectation and economic growth,when the inflation expectation is more than 0.56% and less than 1.41%,the correlation of inflation expectation on economic growth is most significant;third,from the results of threshold effect analysis,most provinces in China will promote economic development by appropriately improving regional inflation expectations.It is reasonable to set the inflation expectation target at around 1.4%.Fifthly,in addition to a further understanding of the dynamics of inflation expectations,how to choose effective policy tools,set feasible economic policy goals,and adopt targeted economic policy rules are the fundamental objectives of this paper.According to the time-varying characteristics of inflation expectation management,TVP-SV-VAR model is established to test the dynamic influence of monetary policy and fiscal policy tools on inflation expectation.The results show that during the transition period of “new normal”,the continuous and active monetary policy stimulates market demand,and at the same time reduced the effect of monetary policy on economic growth.Therefore,the effect of macro-control policy on inflation expectation is reduced significantly.Among monetary policy tools,both in terms of controllability and stability of effects,price-based policy tools are more suitable for management of inflation expectations.Among fiscal policy tools,impact of government purchases highly uncertain and poorly controllable in management of inflation expectations.In comparison,transfer payments are more suitable for management of inflation expectations.Sixthly,based on DSGE and MS-VAR model,this paper analyzes the effectiveness of central bank communication as a macro-control tool in inflation expectation management.The results show that central bank communication on inflation expectation target can effectively influence the public inflation expectation in most cases,the effect is stable and the influence is controllable.The relationship between central bank communication and inflation expectation is two-way,the central bank will adjust the content of communication according to market inflation expectation,in order to achieve the effect of stabilizing inflation expectation.During the period of strong monetary policy persistence,central bank communication is more effective on inflation expectation management than the period which monetary policy is unstable,the central bank also adjusts the inflation expectation management target more actively according to the changes of public inflation expectation in the period of strong monetary policy persistence.Overall,the central bank communication is an excellent tool for management of inflation expectations.In addition,the central bank communication on inflation expectations is not a suitable tool for inflation management.Unofficial information,false information,irrelevant information and other "noise" information on inflation expectations of the instantaneous effect is greater than the central bank communication,But if the impact of irrelevant noise in the market cannot be reduced,the effectiveness of central bank communication in management of inflation expectations will be weakened or even offset.