Analysis On The Inflation And Monetary Policy In China From2010to2011

Since credit currency has been produced, inflation has become to be a big problem to the economic development in all the countries in the world, which is also regarded as a hot issue in China’s economic development. It’s known that the reason causing the inflation are the demand increase、cost push、structural factor and input element etc. However, every inflation circle has different characteristics and its own reasons; we can’t simply use shrinking monetary policy to deal with the inflation problem. It’s suggested that we should analyze the fundamental reason of every inflation circle and apply to appropriate policies to refrain its further development.The logic structure of this article includes six parts. The first part is introduction. In this part, it introduced the research background, significance to the reality, study methods being used and some other problems including in this article.The second part is the collection of related theories and views on inflation problem, especially about the fundamental reason of the inflation circle nowadays. Also introduce the measure of inflation, such as the CPI index, the PPI index, GDP deflator, the GDP deflator index can fully reflect the level of inflation, but it settled once a year, so this paper mainly uses the CPI, PPI index to determine the general price level.The third part analyzes the characteristics of this round inflation and its economic effect. The paper adopts CPI, PPI, GDP average index and some related data in200-2011to analyze the characteristics. Moreover, it uses the data of M1and M2to elaborate the liquidity issue in our county.In the fourth part, the paper analyzes the reasons of this round of inflation, concluding that we can’t simply regard the demand and cost-driven as the reason, actually it is the comprehensive appearance caused by multiple factors, such as external and domestic factors, as well as inflation expectations.The fifth section analyzes the monetary policy and the measures taken by China’s central bank governance the current round of inflation, and the effectiveness of monetary policy were demonstrated. Firstly, we analyzed the effect of central bank open market operations. In recent years the rapid growth of China’s foreign exchanges assets, making the central bank to put too much base money. Due to lack of the other holdings of assets, the central bank has taken the central bank bills to recover mobility. Effective hedge rate from2004to2010as a whole declining, indicating that the central ticket issued per unit can recover very limited monetary.Secondly, the analysis of the effect of the central bank repeatedly raised the deposit reserve ratio. From2010to2011the central banks accumulated raising the deposit reserve ratio by5.5percentage points, the money supply began to go down steadily, CPI has been effectively controlled, but compared to the frequency and intensity,the effect is not very obvious. Thirdly, the author uses the nominal interest rate and real interest rates as the main line, analysis the treatment effect of raised deposit and lending rates. The central bank to raise interest rates five times, real interest rates are still negative, so the adjustment of0.25percent drop for the current round of inflation, it’s symbolic significance far greater than the actual interest. Fourthly, analysis the impact of RMB appreciation. Since2010, China abandoned the fixed exchange rate of RMB against the U.S., frequently adjusting the exchange rate, but prices did not decline, so the appreciation of the RMB is not ideal to curb the current round of inflation effects. Judge the effect of monetary policy in controlling inflation, is not simply to analyze the various monetary policy tools separately, so I use the growth rate of GDP and CPI to a comprehensive measure of the effect of monetary policy, found that monetary policy in controlling inflation is not satisfactory.The sixth part is the conclusions and policy recommendations, based on the preceding analysis, the paper concludes that the monetary policy used during the current inflation is effective, but the effectiveness of monetary policy is increasingly decreased, although it have a role in controlling inflation in the short term, in the long run, the task of controlling inflation is still very tough. So I tried to put forward some policy recommendations, such as steady progress in the market-oriented interest rates, reform of China’s exchange rate regime and the abolition to the payment of the Federal Reserve, the implementation of the different reserve regulation, and the urgent promotion to the bond market in China.