The Applicability Of Inflation Targeting In China

Based on many economists'researches,this paper begins by the emerging of Inflation Targeting, summarizing and analyzing the theoretical origination,theoretical models,design and the preconditions of the Inflation targeting. Then it verifies by DID that the inflation targeting can lower the CPI. And they tells the conclusion that the keys of why the inflation targeting can make success are the advantage of itself and the time choosing.China Currently adopts the monetary supply as Intermediate target of monetary policy and nominal anchor. The monetary supply has exposed that the testability is low, the controllability is not good and the correlations with the CPI are not very high. Besides, monetary policies in China, which act with discretion, can't low the CPI effectively. The CPI and the exchange rate have contradictions with Internal and external equilibrium sometimes.Thus is Inflation Targeting our monetary policies'new chose nowadays? The paper bases on the preconditions to adopt inflation targeting, analyzing on the applicability of Inflation Targeting in China. In term of the precondition, there are lots of aspects should be further enhanced compared with the developed countries, such as finance system, independence of the centre bank, the inflation-forecast and so on. In term of the practicing time choosing, during the period of economic transition, the development of the market economy is not enough, though there is a clear relationship between the trend of the CPI and economic growth, the controllability of inflation-forecast and inflation has some challenges, and the volatility of the outputs growth will lower the outputs level. If we adopted the Inflation Targeting at this time, costs loss will be increased in the economy transformation time.Though the preconditions of Inflation Targeting are unsatisfied, we can learn the experience from the Inflation Targeting countries, improving our monetary policies, consummating the conditions of the Inflation Targeting step by step, and putting a reasonable inflating rate range in medium and long term for the adoption of the Inflation Targeting in the future.