The Research On Inflation Targeting And Its Suitability In China

Inflation targeting(IT) emerged as a brand-new monetary policy framework after the disappointing performance of conventional monetary operation in early 90's. By targeting a specific price index, IT depends on prediction of future inflation rate to give direction to current policy formulation and operation. If the forecast result exceeds the predefined target or target range, lenient policy stance will be taken; and if the prediction result is lower the target or target range, contracted measures will be adopted by monetary authorities. Some preconditions and institutional design are indispensable with the success of IT implementationAs forerunner of IT, industrial countries have made prominent achievement in designing proper institution, maintaining low and stable inflation as well as minimizing output gap. Emerging market countries, through incessant effort to improve shortcomings, also achieved results that could be boasted. It provides a mirror for our country to reevaluate ourselves in this respect through research on experience and failure of these two countries groups.Due to insuperable defection as a intermediate target, monetary targeting have shown obvious weakness in its controllability, data availability and relativity with real economy. There exists real difficulty in IT implementation in China currently. Though our country possesses both prerequisites demanded by IT and limitations that still require improvement at this stage, IT will be the choice of reason upon China's transition completion.