The Empirical Analysis About The Impact Of Expected Inflation On Inflation In The Post-crisis Era

Inflation is an eternal topic of economics. Even now there are still many economists working on it with ease. The discovery and development of prospect theory has contributed significantly to the study of inflation. This theory tries to take full advantage of rational economic participant assumption and effective information collection, which makes the prediction in the area of psychology tend to be rational. In recent years, we have to face and handle the structural inflation in China. The research and revelation of the relationship between inflation expectations of the public and the inflation can provide a reference for policy makers about the need to guide and manage inflation expectations of the public, when the inflation is on the rise.This paper is based on the studies of prospect theory and econometrics. First of all, the review of the main points of different economic schools and the evolution of prospect theory, comes to summarize and analyze the advantages and disadvantages of prospect theory in different periods. Then the autoregressive conditional heteroskedasticity model is raised to reveal the relationship between inflation expectations of the public and the inflation, combining the research and analysis of econometrics in time and quantity. The third part of this paper has simulated and measured the time series on the inflation, finding that the bigger the deviations of inflation expectations (ie, the difference between the expected value and the inflation rate) are, the more volatile the inflation rate will increase; and vice versa. At the end of the paper, it emphatically analyzes the main factors which trigger current inflation expectations. Combined with empirical results obtained earlier, it presents the approach and suggestions of managing domestic inflation expectations, including strengthening public communication, enhancing the transparency of government policy, establishing inflation targeting monetary policy mechanism, interfering with price of the basic factors of production, and so on.