A Study On The Impact Of Monetary Policy On China 's Inflation

Maintaining price stability has been one of the main tasks of many countries’ macroeconomic regulation and is also one of the core objectives of the central bank’s monetary policy. When dealing with inflation, traditional monetary policy often implements after it has happened ("afterwards"), and rarely takes the "beforehand" impact of inflation expectations on inflation into account. Since the end of2009, China’s central bank has gradually classified "regulate (inflation) expectations" as the emphasis of price stability. Based on this background, this paper will explore the impact of monetary policy on inflation expectation.On the basis of reorganizing the theory of relationship between monetary policy and inflation expectations, this paper estimates our public inflation expectations based on the People’s Bank’s announced inflation expectations survey results and improved Carlson-Parkin methods. Then, we use quarterly data from1995to2013, state space model and structural vector auto regression model to analyze the influence of monetary on inflation expectations empirically. Finally, we analyze the conclusion and its reasons. What’s more, we put forward some recommendations from the point of monetary policy transparency, independence, priorities and inflation expectations guidance on the according to the conclusion and our actual conditions.Results of this study show that:(1) With respect to monetary policy under imperfect information game model (Barro-Gordon reputation model), reputation mechanism theoretical models and short-run Phillips theory under incomplete information are more effectively explain our central bank’s "important growth, despise price "monetary policy objective tendencies;(2) When price stability and economic growth in conflict, central bank’s policy motivation of economic growth at the expense of price stability exacerbates the instability of public inflation expectations; A single rule or discretionary monetary policy strategies are not suitable for China, only discretionary policy following certain rules can lead the public to form stable inflation expectations;(3) On the whole, among the methods of inflation expectations estimation, Carlson-Parkin method under normal distribution is more accurate than auto regressive integrated moving average model to describe the dynamic characteristics of China’s inflation expectations;(4) Among various operations in the monetary policy tools, the impact on inflation expectations in descending order is money supply, exchange rate and interest rates. Fundamental reason for this conclusion is that the RMB interest rate and exchange rate deviate from the long-term equilibrium value and their market level is low.(5) Strengthen communication with the public, raise public awareness of the learning ability of monetary policy, give price stability higher weights in the monetary policy objectives, speed up the market process of exchange rate and interest rates and so on should be our country’s central bank’s policy emphasis when leading the public to form inflation expectations.