OLS Regression And Multivariate Statistical Analysis On Inflation Incentives

Inflation incentives are the macroeconomic factors which induce inflation. Correlated study of Inflation's origin is a significant problem in the area of macroeconomic research. There are many related researches in China, but this problem has not been well solved. Since the year 2007, the US subprime mortgage has caused a global economic crisis, which has caused huge difficulty for our government to maintain the economic growth rate and control inflation rate. Meanwhile, inflation has a certain effect on national efficiency of resource allocation and fairness of income distribution. As a result, it is endowed with important theoretical and practical value to study Inflation incentive in China.Some domestic Scholar considered that China must keep fully alert for chronic and durative of inflation, and that inhibiting inflation is the first aim of Chinese macroeconomic policy. Therefore this article's object is to find out macroeconomic factors which have important induced effect on inflation in China, to analyze how to govern and prevent inflation by controlling these factors, and to make policies inhibiting inflation.The research methods of this article take advantage of classic macro-economics theory and modern inflation theory to deduce macroeconomic factors which have important induced effect on inflation in China, applies empirical research methods such as ADF test and Granger causality test to check whether they are Inflation incentives by Chinese data 1985-2007, builds OLS regression model to gain their influence coefficient to inflation, and uses principal component analysis to analyze the main component inducing inflation. This article gains four main research results as follows:1. The incentives of China's Inflation include fast growth of economy and money supply, public expect to inflation, fluctuation in assets prices, cost pushing, international capital flowing and changing of velocity of circulation of money. Their indexes are the original indicators in China's Inflation: GDP growth(GDP), money supply M₂ (M₂), money in circulation Mo(Mo), commercial residential building average sale price(BP), circulated stock market total value(SV), raw material and energy price(RE), FDI, velocity of circulation of money (V2), Foreign exchange reserves(FER) and public expect to inflation(CPI(-1), RE(-1),M₀(-1));2. The induced effects of above-mentioned incentives of China's Inflation size down as below: public expect to inflation, M₀, V₂, and FER;3. After analyzing original indicators by principal component analysis, BP and SV can not be ignored.4. The inflation targeting system should be implemented by China. At mean time central bank should pay high attention to the intermediate target of cash flow Mo, and improve money policy's transmission mechanism. The government should intensify farm products purchasing and energy industry's supervision.In the long run the increasing of demand which induces money supply going up is the origin of inflation, while in the short run stock of supply and importing factor also induce inflation. This article induces the incentives of China's inflation by qualitative analysis and quantitative study, picks up corresponding induced indicators, tests whether these indicators has deduced effect on inflation, analyzes their induced coefficient on inflation and raises reasonable policy suggestion.