An Empirical Study Of Influence Factors On Mainland China’s Price Fluctuation

Price is one of the core indicators that can measure the market economy status; so maintaining the price stability is one of the four goals of China’s macroeconomic control. As an open economy, China’s price fluctuation would be influenced by a host of factors both from home and abroad. The major domestic factors would include variant exchange rate, the changes in demand and supply, the continuity of China’s monetary policy; the international factors would consist of international interest rate, international commodity price fluctuation and so on. When studying the impact of price fluctuations factors, it is necessary to comprehensively consider the various factors both at home and abroad.First, this article will from the macroeconomic factors, monetary factors and international factors to elaborate the theory of the price fluctuation ,which will contribute to explain the price fluctuations theory.Secondly, by dividing the monthly price fluctuation data from January 1990 to May 2010 into four periods, and with the analysis of those four periods of price fluctuation data, The result showed that each period had different characteristics due to the specific domestic and international economic environment related to different time periods. The inflation of market price in Mainland China from 1993 to 1995 was mainly the demand-pull inflation; 1998-2002 was mainly the deflation caused by overcapacity; the price fluctuation rate within 2003-2005 was inclined to be moderate with significant structural features; 2007 - 2008, imported inflation was the joint result from both domestic and international influences.Thirdly, this paper selects the annual data from 1990 to 2009. In the first phase of the research design, the author adopts the factor analysis approach, by using the new variables to replace the relatively huge amount of old variables. In the second phase, based on the data interpreted by the factor analysis approach, the author applies the VAR model to analyze the different degrees of the various factors on the extent of price fluctuations. In the third phase, the author finds out that: overall economic slowdown plays the biggest role in the price fluctuations; currency fluctuations ranks the second place on the domestic market prices; international factors influence the price fluctuations least, but there is an upward trend for them.Finally, this paper attempts to make several policy recommendations on how to reduce the various factors on the impact of price fluctuations and maintain stable prices. Those policy recommendations include the adjustment and optimization of industrial structure and transformation of economic growth; to expand domestic demand and reduce external shocks; to implement prudent fiscal policy and flexible monetary policy; strengthen international cooperation, reduce price volatility.