The Empirical Research On Inflation Uncertainty, Monetary Policy And Economic Growth In China

Inflation, money supply and economic growth have always been the objectsconcerned and studied. Many economists are very concerned about the interactionbetween monetary policy and inflation. On the validity of economic growth they alsomade a lot of researches. Since the reform and open-up, efficient allocation ofconsumption, resources, actual output and many other aspects of China’s macro-economichave been profoundly influenced by inflation for many times. The uncertainty comeswhile the expectation of people towards to inflation and the real level is not consistent. Aschanges of money supply make the expectation of inflation correspondingly changing,various kinds of investment decisions and consumer decisions affect economic activities.In this paper, with Engle’s(1982) method for measuring inflation uncertainty, wefirstly separate the conditional variance from CPI as the indicator of inflation uncertainty,and then make empirical analysis on the relations of China’s inflation uncertainty, moneysupply and economic growth with VAR model raising by Sims(1980). We use quarterlydatas of CPI, money supply (M2) and GDP from the first quarter of1996to the thirdquarter of2011to quantize after quarter-to-quarter and quarter-on-quarter converting andseasonal adjusting. By impulse response and variance decomposition we can get theempirical result that there is significantly negative affection between inflation uncertaintyand real GDP, aggressive monetary policy is effective in short-term, but will be attenuatedin long-term without real effect.