Research On Influence Of Anticipation On China's Inflation

Inflation is a ubiquitous phenomenon in economy, and an important factor which affects the system of economy in the whole world. Seeing from long time, high inflation will take the social welfare away and add the costs of economy. So, searching for the causes of inflation and using the results to seek a method to control the inflation is very significant.There are many factors effecting inflation, and we can't cover everything. So we only choose expectation for researching. In this paper, the most important thing is using the expectation theory for control the inflation. By analyzing the relationship between expectation and inflation, we can put forward some policy recommendations for the government to control the inflation.Because of various uncertainties existed, the status of rational expectations is very difficult to achieve. It means that error exists between the expected value and the actual value, and we call it uncertainty. After eliminated the uncertainty, we can treat it as a state of rational expectations. In this case, the expected value is no difference from the actual value. And the actual value will change with the expected value.We select the ARCH model for researching, and use the monthly CPI from 2001.01 to 2008.10 to obtain the inflation rate, and remove the seasonal factors. Then we can get the basic series. Mean equation is the expression of the expected value, and variance equation carries out the description of uncertainty. Using the Granger causality test method, we can get the relationship between the variables. Conclusions are as follows:1. The value of the former inflation rate has a positive correlation with the expected value, and the expected value will promote the inflation rate changing in the same direction.2. The value of inflation rate can interpret and promote the uncertainty, whereas uncertainty of expectation has no significant influence on inflation. Increasing the rate of inflation will enhance the uncertainty of expectation.3. The uncertainty of inflation expectations and the fluctuations of inflation affect each other. Increasing the changes in the value will cause the public to enhance uncertainty of inflationary expectations. Also, the strengthening of uncertainty will cause the inflation fluctuating much more intensely.From the impact of expectations on inflation, we can see that if the government want to control the inflation, they can reduce the expected value of the public and reduce the uncertainty. In order to achieve the above goals, policy makers have to clarify to the public its determination of fighting for the inflation, and demonstrate its capacity. Demonstrate the stability and reliability of the policy is also necessary. And we should take attention when the inflation was at the low level. So we can see that inflation targeting system is an effective way in curbing inflation, and we can learn something from it.Because we only used the Granger test for causality of the variables, and did not quantify the impact, we need to improve in these areas urgently.