Comparative Analysis Of The Different Intermediate Targets In Monetary Policy

Inflation is a common phenomenon in the social reality and hyper inflation can cause much danger to the economy, so when the policy maker is designing its monetary policy, ha has to take full consideration of inflation. This paper is aimed at finding the optimal instrument to control inflation. It starts from the social cost of inflation and various aspects of it. To sustain economic growth, inflation must be well controlled.To reduce inflation, several intermediate targets can be used, they are: exchange rate, interest rate, monetary aggregate and inflation rate. Nowadays more and more countries have abandoned the traditional ways to control inflation (the former three) and begun to use inflation target, which proved to be effective. This paper compares the different methods in their advantages and disadvantages.China now is implementing monetary aggregate as the intermediate target of monetary policy, which is likely to be unable to meet the changing economic situations. So it's necessary to consider other target rules. Through comparing the suitability of different methods on Chinese economy, this paper concludes that inflation target is an alternative feasible method for China, given further progress in some aspects.