The Correlation Study Of Central Bank Independence And Inflation

After The credit monetary system replaced gold standard system in the 20th century ,inflation draw wide concern from all countries, and had become the"dream demons"of more nations. As the globalization develops, to improve central bank's independence got widely recognized. Great repression rapidly increased the central bank's independence of America in the 30th of the 20th century. Similarly, after rapid development and economic bubbles, the independence of Japan's central bank got great concern from the whole society in the 10-year depression. Under the influence of the subprime crisis, the global economy dropped in dilemma. The loose monetary and fiscal policies aiming to stimulate economic growth resulted in price increase and CPI exceeding 3% in the years 2008-2010. In this case, the People's Bank tightened monetary policy decisively, raising the deposit reserve rate consecutively for eight times to 19.5% till February 24,2011, thus playing a role in people's inflation expectations. At the end of 2010, CPI dropped from the peak point of 5.1%, and reduced further in the January. It shows the monetary policy that the central bank used has made a positive effect in curbing inflation.This paper systematically analyses and discusses the independence of people's bank of China and the effect mechanism of income inequality to inflation. Through the introduction of the central bank's target function, the paper gives a model analysis to the two before. Then it integrates methods of many transition countries which used to measure central bank independence ,and use this method to make a determination to the people's bank of China's independence in detail. Finally, through quantitative analysis and tests ,it draws the following conclusion: Considering that China is a country in transition, the transfer of financial payment caused by income inequality becomes an empirical factor that causes inflation; The stronger central bank's independence is, the more effective it can restrain the inflation caused by income inequality.