The Analysis Of The Influence Of Macroeconomic Policy To Residents’ Inflation Expectation

Unexpected inflation or the instability of inflation expectation will increase the cost of monetary policy, cause significant fluctuations of economy and losses of social welfare. In 2009, China first time proposed "manage inflation expectation well"and took it as a key work of the State Cunncil. Macroeconomic policy plays an important role in China’s economic operation, to study its effect on inflation expectation has a strong practical reference value to expectation management.In this regard,this paper has studied three questions:the first is how to accurately measure and track the public’s inflation expectation; the second is identifying the key variables that affect inflation expectation;the third is analyzing the dynamic impact of macroeconomic policy on inflation expectation with other key variables and further analyzing the impact mechanism of macroeconomic policy on inflation expection.This paper introduces three kinds of methods to calculate inflation expectation and examines the patterns of experts’ and residents’ expectation. Based on the residents’ inflation expectation,we establish a OLS model to study a number of factors that may affect expectation and use stepwise regression and GMM estimation to exmine the robustness of OLS results. On the basis of OLS model, the article establishes a four variables VAR model which includes monetary policy, fiscal policy, inflation and inflation expectation, using DAG technology and economic principles to constrain the structure matrix of VAR we get the impulse response and variance decomposition. Further, we have discussed the impact mechanism of macroeconomic policy on inflation expectation.The results show that the experts’ expectation is inclined to rational expectation, but not entirely rational expectation, the residents’ expectation is closer to adaptive expectation. OLS results show that inflation, monetary policy and fiscal policy are the main factors that influence residents’ inflation expectation. The VAR analysis claims that the inflation expectation of residents not only has the characteristics of self-realization but also has a strong inertia. In the short run, the impact of fiscal policy on expectation is large and time-sensitive, the impact of monetary policy is small but is continuously enhanced in the long term. We also find that to some extent China’s monetary policy subordinates to fiscal policy and fiscal policy has a greater impact on actual inflation fluctuations than monetary policy, which proves the existence of FTPL in China. Futher, through the discussion of the impact mechanism of macroeconomic policy on inflation expection, we speculate that fiscal deficit affect residents’ inflation expectation through wealth effect and monetary policy. In the end, this paper put forward suggestions to expectation management from three aspects which include the stability of actual inflation, collocation of fiscal policy and monetary policy and the prospective of monetary policy.