Quantifying And Forecasting The Risk Of Inflation

Since the notes produced, inflation becomes one of the eternal themes of macroeconomics. Inflation could do more harmful influence. Inflation could decide whether the national economy run smoothly, so it is the major reference for the policy-maker to implement macroeconomic policies. Inflation produces many adverse effects on the economy. It is not only increases the cost of holding money for consumers, easily lead to panic buying storm, but also will create social wealth redistribution effect, which led to unreasonable allocation of social resources, bringing economic losses. Therefore, how to maintain economic stability and healthy development has become the national policy's objectives, and become the main target of economists.In our own country, many economists have studyed inflation both in theoretical and empirical, they have obtained conclusions that consistent with the actual situation of China. But f for quantification of the risks of inflation, few pepole have stduyed it in our country. In this paper, we based on the theoretical and empirical study both in home and abroad, we choose the quantifiying the risk of inflation as the main study, at the same time we forcast the inflation risk of our courty in the horizon of one year and two years. We also put the inflation risk into historical perspectives, and compare the result that we measured to the real inflation risk. By the empirical result of our paper, we could let the consumers and the pilicy-makers realize the macroeconomics situation and it also colud help them make new reference to regulation and control the macroeconomic.This paper is divided into four chapters, the specific structure and content as follows:The first chapter:we first introduce the defination of inflation, and the influence of the macroeconomics that the inflation made; And then we classified inflation use different measures.last we introduce the literature review, in this part we first introduce the research abroad and then we introduce the research both in theory and practice for our country. The second chapter:First we introduce the inflation theory that belong to differnt main schools of mordern western economics.such as:the classic school, the keynes school, the new classical macroeconomics,the new keynes school. And then we give the theory of how to measure the risk, such as:Var, the model of Fishborn, the risk measure model that based on utility function. Finally, we illustrated the inflation history path in China since the reform and opening.The third chapter:In this chapter we give an related modle that could quantifiying the inflation risk of China. First, surpose there is an economic agent, who is the representative of the consunmers.and we also assume that this agent is reatinal man and risk aversion. Then we give the lose function that relate to the inflation of the agent; Second, based on the lose function of the agent we propose the modle that could quantify the risk of inflation, which is the special case of the model of Fishborn. And in this part, for the purpose of meatureing the risk conveniently we definate the Appropriate interval of inflation. Because this is not exist an unifiyed defination of the interval,so we choose the standard of western country:[1,3]. And then we balanced the isk of infaltion and deflation. For appropriatre choices of the risk aversion parameters, our general measure of risk reduces to measures of risk proposed in the literature in the oher contexts. At last we compute measures of inflation risk in practice.The forth chapter:We do empirical analysis for the risk of inflation in China. In the first section we use econometric methods to select the prediction model in China. Our result indicades that for the one year horizon we choose modle 1, and for the 2years horizon we choose modle 3. In the second section we measure put the modle into historical perspectives to quantifying the inflation risk. In the third section we forcaste the inflation risk that both in 1 year horizon and 2 year horizon. Our result implys that: in 2010 their are some Evidences indicate that our coutry may face some infaltion risk. This result is cosist with the policys that made in 2010.1.We can get the results as follows:(1).By described the risks of Inflation in the empirical results,we could see that the method that we proposed in this papet is suitbale for oue country.(2). When we do the empirical results, we add the data of Japan and Korea. From the result of Japan and Korea we realize that this model is not only suit for China but also for Japan and Korea.(3).From the forcast of this paper we find their will exist some inflation risk in China, so our coutry should make some macroeconomic policys to prevent this situation.(4).The methodology proposed in this paper is quite general and can be adapted to other private sector forecasting problems such an analysis of the risks to real GDP growth. An interesting question for future research is how the risk methodology employed in this paper could be adapted for the purposes of policy decisions at central banks.The porposed measures of risk are fully operational and can be computed easily in practice. The ability to measure and forecast the risks to price stability is important to consumers,investors and businesses, as the extensive discussion of the risks in the finansial press illustrates.