The Feasibility Analysis Of Inflation As A Monetary Policy Target In China

As a developing country,it is unavoidable for China to change its policy and system along with the economic situation and social environment. Facing the changing environment at home and abroad,how to deal with it for Monetary policy has been a hot issue of academy in recent years. The goal of monetary policy is one of the important ones. The law of the People’s Republic of China on the people’s bank of China stipulated that "the aim of monetary policy is to maintain the stability of the value of the currency and promote economic growth". Therefore, this paper propose that it is mature slowly to determined inflation for the target of monetary policy according to the domestic and international monetary theory and monetary policy practice (hereinafter referred to as "inflation targeting").Inflation targeting is a prospective monetary policy framework.Under this institution, the central bank is not rely on traditional intermediary goal, such as currency or monetary supply,but through inflation forecasts to achieve the ultimate goal.Although academia have all sorts of different views about inflation targeting, the effect it brought about for the country which had implement it is obvious to all, such as inflation rate decreased significantly, the central bank enhanced independence, the transparency of monetary policy increase and credibility is improved.This paper have four steps including problem finding, theoretical analysis,empirical analysis conclusion analysis and policy Suggestions.This paper utilizes a research methodology that combines case analysis, econometric analysis and logical analysis:regarding the case analysis,this paper compared New Zealand which is the first country to adopt inflation targeting and industrialized countries Canada and emerging market countries Israel,analyzed the political and economic environment at that time, and related measures when introduced the policy,the effect of inflation targeting, and summarized experience;regarding the combination of econometric and logic analysis research methods,this paper using the metering method of "double difference model" to estimate the influence of inflation targeting on the countries’ inflation rate.On this basis, this paper divided the countries into two groups include industrialized and emerging market countries, to compare with the country that has not adopt inflation targeting respectively, and then join the data of china, compared some related numerical indicators with the two groups countries.The purpose of this study is to introduce inflation targeting reasonably, and consider the applicability in China. This paper expected to make contribution in the following several aspects:first of all, this paper examined the data from1985to2011of40countries,and in order to get more accurate conclusion,the paper set the treatment group and the contrast group.Second,this paper introduced different aspects of the inflation targeting as the origin, characteristics, international experience and so on,trying to be coherent and complete.Finally,a in-depth and objective analysis of the applicability of inflation targeting in China,based on a comprehensive consideration of the required conditions of inflation targeting and China’s current situation.The results showed that the implementation of the inflation targeting does bring positive influence to industrialized and emerging market countries.Although the inflation targeting have great advantages, and quite part of domestic scholars also support it,But as a new framework of monetary policy, its success must be combined with actual situation of each country. As a socialist market economy, compared to environment and institution with other countries,China is still not very mature in some aspects. So this paper concluded that at present we can’t meet the conditions,but can move to the inflation targeting slowly.