Expansion Of Investment In Fixed Assets On The Impact Analysis Of Inflation

Inflation is the eternal economic research issue. Relative price and output of many foods will be distorted due to inflation. In extreme situation, that kind of distortion will seriously affect whole output as well as employment. High-rate inflation is no less than a new allocation of fortune among different hierarchies. Since the reform and opening-up of China, our country has experienced5high-rate inflation eras, among which the highest frequency occurred in the new century. It stands out among its own history and most counties’. Inflations used to be in the wake of high M2level and active fiscal investment policies. The contribution made by investment to GDP has never stopped increasing since1978, while it is consumption that took great part in developed countries’ GDP. Recently, the fixed-asset investments in railway, fast way and infrastructures have remained high. Plus, investment in Resource monopoly type industry and big manufacturing state-owned enterprises kept high level at the same time. How much affection will that big scale fix-asset investment have on the economy? Are they primary sources of the5high-rate inflation? What was the efficiency of that high-level plan-oriented investment? Will the affection on price introduce more serious economic problems?In this article, we consult and improve a theoretical model studying the efficiency of investment in China and analyze the theoretical evidence of the affection of fixed-asset investment to inflation in the first place; then we use the quarter data from1992to2012, for empirical research. In the research, we apply to Granger test, VEC test, and impulse response function as well as variance decomposition approaches. We conclude that the over-investment in fixed-asset is the granger causality of inflation; and it is the over-investment in fixed-asset that has the biggest affection on inflation except for inflation itself. Continuously, we analyze the transmission channels of over-investment on fixed-asset to inflation. We conclude that the over-investment stimulate the demand of certain industries and result to demand-pull inflation;the over-investment promote bank to create more currency and that lead to inflation; also, the low-efficiency of the over-investment itself generate inflation. At last, we suggest that the over-investment on fixed-asset may be only the presentation of the deep structure problems of economy. We hope the conclusion of our research can have a warning effect to the government. Just depending on monetary policies will have little effect on controlling inflation. To control inflation fundamentally, we should have an efficient way to restrain the administrative power of government and respect the law of market economy.