Inflation And The Effectiveness Of Monetary Policy Control

In the process of Macro-economy running, the inflation is one of the most sensitive variables of economic phenomena,. It generally refers to the situation that is issued by the monetary authority much more than the actual needs of commodity circulation. Once it comes into being or getting deteriorating, the inflation will not only lead to serious distortions of market prices, but also lead to a serious devaluation of currency and undermine the operation of the market rules.The effectiveness of monetary policy can be proved by these characters. The fist is whether monetary policy based on the specific shape of the economic environment can work well. The second is that in use of specific policy tools and policy instruments, and through the different monetary conduction mechanisms, whether the monetary policy can affect the operation of economic and financial realities to guide the social currency flow of capital to improve the efficiency of resources allocation. The third is whether the monetary policy can enjoy the smooth realization of its intended target.The main purpose of this thesis is to examine the monetary policy's role in controlling inflation, in order to propose the recommendations about the inflation controlling and to improve the effectiveness of monetary policy.In this thesis, we firstly analysis the causes, characteristics, treatment response, as well as the management measures adopted by the fiscal and monetary policy to deal with that of four independent inflations. The four independent inflations happened from the reform and opening up, 1980 to 1994. In a relatively closed economy, during the economic transition in China, the inflation is mainly due to the fast formation of infrastructure investment, the big budget deficit and the high speed in money supply. Monetary policy and the inflation control is effective. At the same time, according to the main implementation of monetary policy ,central bank has very little independence in its monetary policy. For example, the expansionary monetary policy often led to the inflation.Secondly, from the aspect of analysis on the cause of the 2007-2008 inflation and the effectiveness of monetary policies used to govern the inflation, the thesis holds that such a inflation is made not only by the conduction of international inflation pressure, but the release of pressure of under-estimated labor costs as well. The inflation was still under the situation of domestic reaction of the contradictory factors sleeping deeply in the economic running. For the use of governance and the effectiveness of monetary policy approach that are in the current round of inflation in the period 2007 to 2008 , the conclusions for the effectiveness of the monetary policy are : open market operations which is used to regulate the money supply was failure, but the regulation of money market interest rates was effective and haven't achieved the desired results. The statutory deposit reserve rate for the current round of inflation in controlling, the money supply was failure, too. Deposit and loan interest rates adjusted for the non-symmetry in the current round of inflation-control in controlling the money supply was failure.With the analysis on the cause of the 2007-2008 inflation and the effectiveness of monetary policies used to deal with the inflation, this thesis holds that the 2007 -2008 annual inflation was still relying on the management of the number of monetary tools, the operation is still in the money supply as an intermediary target. According to a further empirical analysis and the analysis of ineffective monetary policy, we can draw a conclusion that as an intermediate goal of monetary policy, the money supply can be measured and has a high degree of relevance with CPI, but it lacks controllability. The lack of controllability of money supply is caused by monetary policy transmission mechanism in China such as the interest rate mechanism, the central bank independence, exchange rate mechanism and the settlement system of deep-rooted institutional problems.Finally, the proposals to improve the effectiveness of monetary policy are improving the rediscount policy, reforming of the deposit reserve ratio system, developing and improving the open market operations, promoting market-oriented reform of interest rates.