Theoretical And Empirical Research About Imported Inflation Pass-Through Mechanism

Since 2003, international commodity price such as crude oil, raw material and grain has experienced a remarkable upward rise driven by blooming market demand, sustaining dollar depreciation and loose monetary policy. United States, European Union and Japan, the biggest three economic entities, are witnessing different inflation pressure and are passing this pressure to other economic entities globally. Despite of the break out of US sub-prime crisis at August 2007, global commodities price continued to rise after a temporary decrease. Therefore the inflation pressure is still spreading throughout the world. As an economic giant with high dependence on foreign trade, China has experienced two severe inflations with obvious imported feature. At this time, conducting some research about the pass-through mechanism of imported inflation is helpful to clarify the cause and mechanism of current inflation for economic participants and provide some therapy about the short-term and long-term policy selection to cure inflation.The main subject of this dissertation is about the pass-through mechanism of imported inflation. According to the structure of"theoretical research–phenomenon analysis– empirical research– outcome analysis", there are five chapters. Chapter one is a summary about the definition of imported inflation, the classical theories about pass-through mechanism, empirical research outcome and corresponding policy selection. Chapter two mainly describes and analyzes the theoretical research about imported inflation pass-through mechanism of Keynesian International Payments School, Currency School, Structuralism and New Structuralism School. Chapter three firstly analyzes the international and domestic economic situation and the main features of this round inflation in our country, then analyze the pass-through mechanism's"imported"characteristics based on the new structuralism's emergence, maintenance and sustainment mechanism described in chapter two. Chapter four select the primary commodity import price index and quantity index, weighted average nominal exchange rate and producer price index of Chinese major suppliers with weights proportional to the import shares, our country's CPI,,labor productivity, output gap, monthly growth rate of M1 and grow rate of foreign exchange reserve from January 2005 to August 2008 to build Import pass-through Degree Vector Error Correction Model and Import pass-through Mechanism Vector Error Correction Model. They both indicate that new structuralism's imported inflation pass-through mechanism has solid effect towards our country inflation's emergence and sustainment. Chapter five also provides some recommendations and comments about current tightening monetary policy which has clear inflation targeting feature.