The Research On The Relationship Between Inflation And Inflation Uncertainty Of China

Theoretically, if the inflation could be fully anticipated, it would reduce the uncertaintyof economic context for the economy subject at a micro level, preventing pricemechanisms being distorted and also lower the cost of macro-economic operation, avoid-ing unnecessary social welfare loss. However, in most times, inflation could notcompletely anticipated, full of uncertainty, which lowers the efficiency of economicactivity and has a bad effect on macro-economic operation. So a lot of research turns todescribe and examine the relationship between inflation and inflation uncertainty. Takingan in-depth look at issues what the relationship between inflation and inflation uncertaintyprovides us with a new perspective, refines and extends on studying the inflation problems.We can fully understand the situation of the inflation, which enhances and improvesmacroeconomic control efforts, to maintain national economics good condition.Firstly, this paper defines the concepts of inflation uncertainty, and then analyzes theaffect factors of it, last illustrates the impact of inflation uncertainty. Thirdly, estimates thevalues of the inflation uncertainty. By integrating the primary evaluation methods, thispaper selects TGARCH as the model that estimates the values of the inflation uncertainty.Fourthly, portrays the relationship between inflation and inflation uncertainty in threeaspects: a. Appling Granger causality Tests to examine the relationship between them indifferent time horizon. It showed that inflation is the Granger causes of the inflationuncertainty in short-and medium-term, however, in long-term they are each other’sGranger causes. b. using quantile regression method to go on investigating the relationshipbetween them from numerical features. The results show that with level of quantileincreasing, effects between them grows. c. employing VAR model to discuss the dynamicimpact of inflation on inflation uncertainty. Results demonstrate that inflation has alasting effect on inflation uncertainty, Over time, however, inflation influence wanes.Lastly,proposals on lowering inflation uncertainty and improving policy transparency areput forward.