Study On Inflation Expectation Of Chinese Monetary Policy

Inflation governance has always been the central Bank’s one of the important monetary policy objectives when meeting the economic prosperity. Despite the emergence of the financial crisis, China has been back to the path through the support for the four trillion fiscal policies. However, economic development will inevitably bring the corresponding inflationary pressures. Facing the huge inflation pressures, central bank’s inflation managements have a lot of difficulties and challenges. In fact, in order to fundamentally holding a stable inflation degree and eliminating inflationary pressures, we must give full play to the expectations of monetary policy management, and guide the participant’s inflation expectations at a stable level.Inflation expectation is so difficult to measure. However, financial asset has been a major part of the economy participants’total assets nowadays, so the financial asset price changes will largely affect the economy participants’inflation expectations, and ultimately affect the real economy. Therefore, taking advantages of China’s asset prices transmission channels of monetary policy would be a new way to help Chinese central bank manage the inflation expectation.Based on the above reasons, we should focus on the relationship among the asset prices, inflation expectations and the monetary policy. The first step is to analyze the relationship between inflation expectations and the real economy and the relationship between monetary policy and asset prices. Secondly, we analyze the effects of asset prices on inflation expectations channels through theory method, and use co-integration and error correction model to verify the theoretical analysis results. Finally we deal with how to implement the monetary policy facing the asset prices’frequently fluctuate, and learn from foreign advance experience of managing inflation expectations in order to realize the effective management of inflation expectations of monetary policy.