The Asymmetry Analysis Of Factors Affecting Price Fluctuation In China Within An Open Economy Environment

Since reform and opening, China has undergone two higher inflation periods in the1980s,1990s.In the21st century, China’s overall price shows short-period fluctuation state.The exchange rate system is no longer pegged to the dollar since July2005,the exchange rate of the RMB against the U.S. dollar began to be revaluated, a variety of international commodity prices rose sharply, a large number of international hot money began to enter China,as the result of that, China’s CPI began to rise rapidly in2OO7.With the outbreaking of global financial crisis, the slowdown of international crude oil prices and the appreciation pace of the RMB exchange rate, CPI rapidly declined in2008.Until November2009, CPI stopped negative growth, and began to sustained climbing.To July2011, the growth rate of CPI reached the maximum6.5%. In2013, although the former seven months of the inflation rate remained at a moderate level of less than3%, inflation pressures still exist. Firstly, the price of Chinese agricultural products and services are facing upward pressure,Secondly, the implementation of accommodative monetary policy in developed countries, which increase China’s imported inflation pressures.Exchange rate and interest rate Market-oriented reforms have been a hot topic in recent years.In March2005, the central bank further liberalized financial institutions interbank deposit rates. In June2012, the central bank has allowed financial institutions raised the RMB deposit interest rate’s upper limit of the floating range. From20July2013, the central bank fully liberalized financial institutions’lending rates, enabled financial institutions determine the level of lending rates independently in accordance with commercial principles. The People’s Bank of China announced the reform of the exchange rate regime on July21,2005, the exchange rate system is no longer pegged to the dollar, but a based on market supply and demand, reference to a basket currencies, the managed floating exchange rate system. In April2012, the central bank extended the floating band of RMB against the U.S. dollar from five thousandths to one percent.The central bank pointed out the need to further promote the interest rate and the RMB exchange rate formation mechanism reform in release of 《The Second Quarter Monetary Policy Report of2013》in August2,2013. The report pointed out that we should continue to improve the market-oriented interest rate formation mechanism, optimize the financial market benchmark interest rate system, keep the RMB exchange rate basically stable at a reasonable and balanced level.The Central Bank of China mainly uses quantitative tools to achieve monetary policy objectives.Quantitative tools are easy to be used,but there are also disadvantages.On the one hand, they will lead to price signals distortion, and the commercial banking system lacks the dynamic of risk identification.On the other hand, the currency in our modern banking system is endogenous, quantitative regulation methods are increasingly ineffective regulation. As the result of quantitative policy tools’drawback, coupled with the gradual market-oriented of exchange rate and interest rate,China’s monetary policy tools are being gradually shifted from quantitative type to price type--exchange rate and interest rate.Phillips curve theory has been proposed for the first time since1958, after continually replenish and correction, has formed a relatively complete theoretical system, and is widely used in inflation studies.But the traditional Phillips curve studies are focused under the assumption of online and symmetry.When the economic environment and structural changes, this assumption is untenable. Thus, academics began a discussion on non-linear Phillips curve mechanism. The transformation mechanism of Smooth Transition Regression model is gradually smoothed, and the model is relatively simple to be used,these advantages allow Smooth Transition Regression model become the preferred model for nonlinear problems since2000.This article uses the Hybrid New Keynesian Phillips curve theory as the foundation theory,selected respectively real effective exchange rate volatility and the actual rate as the transition variable, created Non-linear Phillips curve with the form of Smooth transition regression model.Investigation the asymmetric characteristics.of factors that affect the price fluctuations.This paper is structured as follows:the first part is an introduction, mainly on the background, the significance of this paper;the second part is the theoretical model;the third part is data selection and testing;the fourth part is to build Chinese Nonlinear Phillips Curve model, and to estimate, make economic sense according to the analysis of empirical results;the fifth part is the conclusion and the relevant policy recommendations.The conclusion is:the real effective exchange rate volatility’s threshold is3.5%, the conversion rate is3.89; the effective interest rate’s threshold is0.5%, the conversion rate is8.75. Whether choose the real effective exchange rate volatility or the actual interest rate as the conversion variable, the output gap, lagged inflation rate,the change rate of the money supply have a statistically significant impact on China’s inflation rate,and emerged as a significant nonlinear effects.When the volatility rate of real effective exchange rate as the conversion variable, the effective direction of international commodity prices and the volatility rate of real exchange rate effect on the inflation rate is inconsistent under the different values.The effective of interest rate on inflation is not significant.Trade dependence on the impact of inflation does not come to the consistent conclusion,which remains to be continual studied.