Cause Analysis Of China Inflation Under The Open Economy

Under the condition of the open economy, it seems to have a relationshipbetween monetary factors, external factors and inflation. Especially China has been inthe process of highly globalized economy and the international inflation has enteredChina through a variety of ways, there arises a bone of contention in our academiccircles that is the entering of international inflation makes China under huge importedinflationary pressure under the condition of the open economy. After the subprimecrisis, the four round of the quantitative easing monetary policy in the United Statesmakes the US dollars flow. At the same time, it leads to strongly influence on China’sinflation. But there are still other economic scholars think that the main influencingfactor of China’s inflation is the high monetary growth rate.Given all this, the writer establishes two models in the article to research thecause of inflation in China. First of all, the writer wants to verify a long-termequilibrium relationship between raw-materials prices and inflation in the secondmodel. As a matter of fact, China has a large number of imports in raw materials.Considering the pathways of the price of the international transmission, the writerwants to analyze the relationship between raw-materials prices and inflation. As theempirical result shows, there doesn’t a long-term equilibrium relationship betweenraw-materials prices and inflation. Therefore, it is a biased view to say that the risingprice of raw materials is due to inflation. The rising in commodity prices may be justthe results of inflation, but not the reasons. Secondly, the writer wants to verify theimpact of money supply on inflation. Taking into account the background of our openeconomy, the writer not only considers Chinese monetary growth rate but also addsAmerican monetary growth rate into the cause of inflation in the first model. Bycollating the data from1986to2011and analyzing the monetization growth andinflation both in America and China, the writer found that Chinese monetary growthrate has a significant impact on China’s inflation, but the impact of Americanmonetary growth rate is not very significantly affect in China’s inflation.This study shows that under the condition of open economy the primary cause of China’s inflation is not the impact of American monetary policy or the majorpromoting role of the import prices. The external factors are the secondary factors.The primary cause of China’s inflation is due to its high monetary growth rate.