Comparative Research On Measured Method Of China's Core CPI

At precent, more and more countries and regions have built and account the country's core inflation rate.The core inflation rate have been a reference indicator for monetary policy. Core CPI,which is based on CPI, reflected long-term, stable trend of price after exclusion of the temporary, non-monetary factors (government regulation, tax policy, etc). In the year of 1972, the U.S. president's economic report put forword that the economy should focus on core consumer price index which excluded food and interest. Since then, many countries began to expand the research on the core price index. We could see from the recent literature that domestic scholars have begun to try to study the core inflation. In 2006, Wuhan Branch of PBOC calculated our core CPI with a certain method. From the present situation of domestic and foreign research, the study of core inflation focused on the different concept and different measurement.First of all, this paper analysis problems and defect of the existing price system problems, then list systematically the domestic and foreign literature of the core inflation. At last, the content of this paper and innovations have been put forward.The central part of this paper is the empirical research. The four common methods in the world were applied in the research using the monthly date from January 2001 to February 2011. The four methods are exclusion method, cut average method, median method and SVAR model method. The empirical research showed the trend features of various core CPI and CPI. Then the paper made a brief evaluation of the performance characteristics of each method. According to the three characteristics of core CPI, there were three standards to assess various core CPI. Firstly, core CPI should have smaller volatility than CPI. Secondly, core CPI should forecast future price movement. Lastly, core CPI should relate higher to the monetary mounting speed. Through these three aspects, the paper assessed the various core CPI. The results show that the core CPI of four accounting methods have smaller volatility than CPI. Within the four method core CPI, exclusion method core CPI have the smallest volatility and the best stability. SVAR model method core CPI have the biggest volatility and the worst stability. Four methods core CPI entirely have the forecasting ability. Four methods core CPI are highly correlated with CPI, but they have weak correlation with the monetary mounting speed. The reason is large fluctuations of reference index when PBOC formulate monetary policy for a long time.The four method core CPI which had an advantage, depended on the different standard. Under different standard, there would be different best method. From our current condition, we should choose exclusion method to measure the country's core CPI. Food, living and energy which wasn't be measured should be fully considered. Through the above empirical analysis and international comparison, our country should establish core inflation index system as soon as, core inflation to reflect the price of long-term trend, it is removed due to natural disasters, climate and other temporary factors and not due to national policy objective reflection of the control changes in market supply and demand factors, the establishment of suitable conditions of our country's core inflation indicators, which analyze the economic situation and the development of effective monetary policy has a certain practical significance. Currently, there are people guiding role of the CPI doubt, mainly because of food in the CPI CPI weights too easily lead to food "kidnapping." Therefore, the proposed adjustment of the core CPI should begin before the food weight. SVAR variance decomposition results tell us, CPI's own role in food and other shocks than for the next round of price fluctuations is greater and therefore governments and central banks should take measures (such as published core CPI, etc.) to guide the public has a reasonable price expectations, which will run in a rational price range. The current supply is mainly caused by price inflation, inadequate supply should be taken against the corresponding measures rather than overall inflation and should be used in tightening monetary policy.The innovation lies in removing the paper using the details on the method, the literature usually removed in the law are removed using food or food and other items, the paper that the proportion of China's food item is too large, after striking representation of the CPI is not strong, So choose a sub category items, excluding food. The disadvantage is that the core CPI and monetary policy effectiveness of the relationship between the few.