The Influence Of External Economic Shocks On CPI And PPI

In the21st century, along with the globalization process of finance and economy, the flows of the international capital and the development of different countries in the world have become increasingly frequent and interdependent, thus the probability of suffering a chain reaction from some external shocks is growing large, which also can’t be ignored in the process of sustainable development of Chinese economic. Therefore, the purpose of this thesis aims to clarify the impacts of global liquidity, the international commodity prices, the real effective exchange rate and the U.S. federal funds rate on the domestic price level in China through theoretical and empirical analysis. Moreover, we hope to give some strategic recommendations to help our government and monetary authorities to effectively reduce the external shocks and stabilize the domestic price level.To remedy the deficiencies about the external economic shocks in the domestic and foreign research, this thesis has improved four main aspects which include the data selection, the impact of external economic factors, the research perspective and methods. The author selected some recent data with the better timeliness and without the system effect. Considering the impact of the global excess liquidity, the shocks from the fluctuation of the international commodity price and the real effective exchange rate of RMB, the author studied the impacts of external economic shocks on the PPI, CPI index from two aspects, overall and industrial segments. Meanwhile, the author focused on using a large number of data and charts to describe the real phenomenon of domestic economy instead of emphasizing the transmitting mechanism. This is a more persuasive study with the empirical analysis methods. In addition, this thesis used the Phillips expansion curve, the impulse response function and variance decomposition in the VAR model to study the depth and lasting time of the influence on the domestic price level caused by some main impact factors such as the price of the international crude oil, the prices of the international foods, the global fluidity, the real effective exchange rate of RMB and the U.S. federal funds rate.The research results show that the domestic price fluctuation has a big in inertness and is mostly affected by the prices of the international crude oil and international foods. Comparatively, the U.S. federal funds rate just has a little effect. Besides, the long term increment of the real effective exchange rate of RMB has a significant tightening effect on the PPI, CIP index while the growth of the foreign exchange plays a positive role in the promotion. In addition, the difference industries have various reactions to the external shocks. In short, China has a severe inflation caused by the "imported" fluctuations of the international commodity prices. The increasing flexibility of the RMB exchange rate can curb the domestic price level. Moreover, Chinese government achieved certain results in the hedging measurement.