Measuring China’s Inflation Expectations And The Study On Its Influencing Factors

Inflation expectations is significant for central bank to control inflation. Since expectation was brought in the inflation theory,it has further developed. And then the viewpoint that inflation expectations is one of the important determinants of actual inflation is accepted in economics. So many countries try to keep inflation by control inflation expectation.In recent years, our country has been plagued by inflation, and high inflation expectations have more influences on actual inflation and asset prices. In the second half of2010began a new round of inflation. According to the survey of people’s bank of China to urban residents, the public expected future price index is81.7%in the fourth quarter of2010, which is the highest in ten years and never lower than70%since2011. At present, our country is in a macro economic growth slowed, but inflation remains high complicated situation.So managing inflation expectations become particularly important. This raises the following questions:how to measure the inflation expectation of china’s residents? If managing inflation expectations can effectively curb the actual inflation. What specific policy measures can we take to manage inflation expectations, if an effective way to curb inflation is to keep inflation expectations? If the tools of monetary policy is effective when central bank uses them to manage inflation expectations?First of all, this article simply introduces the theory of inflation and inflation expectations. Then this article uses the structural vector auto regression methodology and its blanchard-quah decomposition to make inflation expectations separated from the nominal interest rate on the basic of the analysis that inflation expectations have no long-term influence on nominal interest rate. After that we can achieve the time series of monthly data of inflation expectations and prove that inflation expectations has a strong ability to explain nominal interest rate.In the second place, this article dose the cointegration test, granger causality test and impulse response function using the series data of measured inflation expectations and the actual inflation for the purpose of exploring the relationship between the two variables. According to the consequence of empirical analysis, we can see that real inflation and inflation expectations have common long-term trend and the lag phase of inflation or inflation expectations have influence on the other’s current phase. The arise of real inflation can push forward the arise of inflation expectations. Conversely, going up of inflation expectations can drive the arise of real inflation. Real inflation may suffer the influence from the economic policies and other economic factors in short period, so the effects inflation expectations promotes need a period of time to appear. The transmission from real inflation to inflation expectations also need some time. Earlier phase of inflation expectations have positive influence on future inflation expectations, which shows that inflation expectations have strong self-realization. Only keep one of real inflation and inflation expectations can control another. So the effective way to curb high inflation is to manage the inflation expectations. Managing inflation expectations should be one of monetary policy in our country.The last, this article empirically analyses the influence factors of inflation expectations, which try to find effective way to manage inflation from the factors. We selected seven indicators from different aspects of macroeconomic, include lag of inflation expectations response of inertia factors, CPI response of price level, nominal interest rate response of policy factor, nominal exchange rate response of exchange rate factor, the output gap response of economic situation, the real estate economic index response of price of house and the money supply growth response of money supply. We take these indicators as explanatory variables and use multiple linear regression model to explore which are the direct influence factors of inflation expectations, at the same time,we analyse the lag and direction of the influence. Then we can achieve these results:the nominal exchange rate have no significant effect to the inflation expectations; actual inflation and nominal interest rates require shorter time to curb inflation expectations, the money supply need a bit long time to curb inflation expectations and the output gap has a continuous influence on inflation expectations; house prices have a significant influence on inflation expectations; monetary policy is effective in the management of inflation expectations. Reducing the money supply growth, raise the nominal interest rate will curb inflation expectations rise.In addition, about how to manage inflation expectations to effectively curb high inflation, we offers these suggestions:First, we should take balance the money supply and the nominal interest rate as an important means of monetary policy to manage inflation expectations. Second, the central bank should enhance the grasp of the economic situation and the judgment of the situation of forward-looking, wary of cumulative effect on the implementation of monetary policy. Again, we support the government policy of appropriate intervention on real estate prices. Finally, inflation expectations should be given timely suppressed at the early stage. By increasing the transparency of monetary policy, make changes in the rate of inflation target range, reduce the public’s expectations blindly.