| Price is a big issue which influences people’s livelihood, nation’s stability and overall situation. On March5,2011, Premier Wen Jiabao presented in the government work report that, the primary task of macro-regulation is to ensure the price stability, and the national price control target is set for consumer price index (CPI) rose about4percent. The concrete quantitative criteria about the inflation, which is one of the final goal of monetary policy, requires very high control ability of China’s monetary authorities. This paper is concern about how to choose appropriate intermediate objective to promote the achievement of final goal, and how to forecast the future economic situation with the chosen index. In China’s current economic circumstances, the Credit Amount has lost its ability to be the intermediate objective of monetary policy, and the reformation of interest rate and exchange rate is so limited as to undertake that duty. So the money supply becomes the most important intermediate goal absolutely, but there are still a lot of discussions about which kind of monetary supply is better. This paper based on the relationship about money supply and inflation; research the two level of money supply’s applicability to be the intermediate goal. I analyze the M1and M2through the testability, controllability and correlation comparatively. The conclusion is that M2is a better choice to be the intermediate goal than M1, and Ml can be used as a observed object. After that, a linear estimation model is established, which can be used to research the quantitative relationship between M2and CPI, after a series of test and correction of variance, a weighted least-square estimation model emerged to forecast the CPI of2011. At the end of this paper, some forward relevant policy suggestions are put which is Consistent with the comparative analysis and forecast. |
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