Study On The Uncertainties Of China's Inflation And The Feasibility Of The Inflation Target

Ten years ago we afford one Yuan to see a movie, but now a newspaper can cost us 6 jiao, we know that the inflation are correlated with our lives nearly, and the government attach great importance to the problem of controlling the inflation .the early theory that study the inflation is the Philips curve, that is, the inflation rate and the unemployment rate have the negative relationship. Because the inflation is affected by many factors, so the study on it should be complicated. Since Friedman demonstrated that the uncertainty of inflation and the inflation rate have the negative relationship, the study on the model to simulate the inflation has been developed.How to measure the uncertainty of inflation is the big problem. Before, we often use the variance to describe it, but it has the attribute of time-varied variance, so the early means should be adapted. Since Eagle put forward the model of ARCH (Autoregressive Condition Heroskedasticity), this model afford a way to describe the uncertainty of inflation.Since New Zealand adopted the policy of Inflation Target (IT for short), many countries have followed its lead, the policy of IT is to fix on a specified quantitative target, if the real inflation rate is deviated from the target, then the central bank will take measures to rectify it .As to the policy of IT, now the researches are put on its merits and shortcomings, and compare the applicability of the policy of IT and price target.The first part of the article introduces the basic theory of inflation including the definition, properties and the means of measurement. In the second part of the article, the author uses the GARCH model to simulate the character of time-variance for the inflation rate and the outcomes are good, and the article use Granger test to the dates of inflation and the inflation uncertainties. The outcomes show that they are not the Granger reasons of each other. The fourth part of the article uses the mean of Impulse response and Variance decomposition to analysis the financial policies and monetary policies to analyze the response of inflation to the financial policies and monetary policies, the outcomes show that the contributories of financial policies to the control of inflation are big but the part of the monetary policies are small. The fifth part of the article introduces the adoption of the policy of IT in many countries and the applicability in CHINA.