Considering The Amendments Of China's Inflation Index Based On Asset Price Factor

In general, the central bank's primary task is to maintain price stability, which determines a reasonable inflation target. For a long time, the price index, with the consumer price index (CPI) or retail price index (RPI) to measuring inflation only involves the prices of goods and services without asset prices.With the rapid development of China's financial market, the stock as represent of the financial assets and the real estate as represent of the non-financial assets in the proportion of household wealth. The asset prices'volatility more infects the aggregate demand of national economy through the wealth effect and substitution effect and therefore the level of inflation of a whole society. So, which inflation index could better reflect the true level of inflation that people feel in current? Should we build a measuring-inflation-model that including asset price factors and how to build? The answer has become no-avoided for the central bank how to treat asset price volatility and how to make a reasonable choice of monetary policy goals, thus maintaining macroeconomic stability.This article aims to amending China traditional inflation index through introducing asset price factors.The first chapter analyzes the need for amending inflation index by introducing asset price factors, which is helpful to reflect the real inflation level in current and make a reasonable choice of monetary policy objective for the Central Bank, through the current forms of inflation and the defects of traditional index.Chapter II analyzes the transmission effects of asset price volatility to inflation from the wealth effect, substitution effect of asset price and micro-social behavior of the private sector, and then explants the correlation of asset prices and inflation in theoretic.The third chapter empirically tests the correlation of asset prices and inflation with co-integration theory. The results showed, from 1995 to 2009, both monthly stock prices and real estate prices are significant related with inflation, which, to some extent, confirms the previous chapter theoretical analysis on correlation of the asset prices and inflation, and become an important basis for us to considerate amending inflation index with asset price.ChapterⅣbuilds an asset-price-modified-model to measure inflation, and then proposes a more reasonable choice of monetary policy objective that the central bank should use asset prices as indicators when it enters an inflation-targeting as and makes monetary policy, and appropriately, take into account the volatility of asset prices.