A Choice Of Monetary Policy: Inflation Targeting

Since 1990s, as a new monetary framework Inflation targeting has been continuously adopted by a number of industrialized countries and emerging market countries that usually also adopt a flexible exchange rate regime. The experiences of these counties in the world have proved Inflation targeting quite successful, inflation targeting countries usually have low-run stable prices and stable Macroeconomic conditions.When china continues its rapid integration into the world economy, and its capital flows more freely and frequently, china adopted a managed floating exchange rate regime in reference to a basket of currencies. after this reform, a low inflation objective could be taken to put in place as a new nominal anchor for stabilizing china's economy, which is the reasonable choice for china and which china could endeavor to realize. So, in order to enhance central bank's independence and make monetary policies more effective and forward-looking, doing research on how to implement this framework in china is an urgent need.Firstly, this paper reviews the design and implement of the experiences industrialized countries and emerging market countries that have adopted inflation targeting all rounds, in order to draw on some ideas for the reconstructure of china's monetary framework. Secondly, from the monetary transmission mechanisms, this paper makes an empirical exploration between the monetary policy instruments and inflation by a VAR mode, lthe result shows that the relationship between them is stable but not predictably. Thirdly, according to the inflation targeting's prerequisites, this paper evaluates the challenges that china has to face when implementing inflation targeting in the future on aspects of economic system and the issues of operational design. Finally, this paper gives medium-term and long-term advice for implementing inflation targeting in china.