Research On The Relation Between Asset Prices And Inflation In China

In the past 20 years, the central banks have made great achievements in controlling the inflation of ordinary goods and services. But frequent fluctuation of asset prices, as well as several systemic financial crisis and economic depression caused by the collapse of asset markets, have forced the authority to pay more attention to the information conveyed by the asset prices'fluctuation and the solution.We can find that asset price and inflation are closely related to each other after a comparative analysis of them. Based on a massive literature research, through theoretical analysis, it finds out the pathway of the interaction of asset prices and inflation. Then, this paper works out the interrelationship of asset prices and inflation by using the general method of statistical analysis. Positive results show that China's asset prices and inflation are in a long-term balance and the assert price has bigger influence on inflation than stock price. Granger causality test shows that rising of stock price and estate price lead to the rising of CPI.According to the analysis of the result of monetary policy on controlling China's inflation, and the validity of China's monetary policy transmission mechanism of asset prices, we found it hard to control inflation, and difficult to achieve efficient transmission in stock market and real estate market in China. The factors constraining monetary policy transmission mechanism of asset prices are excess liquidity and speculation.With the consideration of China's actual situation and the conclusions of theoretical and empirical analysis, giving the relating policy suggestions to deal with the fluctuation of the asset prices and complement monetary policy framework at the end of this paper.