Empirical Comparative Research Of Chinese Inflation Persistence

After a price turbulent period in the last century, the time trend of China’s inflation growing steadily, it’s suggesting that the central bank’s series of reform measures and monetary policy on the price stability and economic order has some results in mid-1990 s. With the deepening of market-oriented reforms, the situation of China’s inflation has become more complicated. In 2008 Pork prices boosted food price index, at the same time it is led to a wave of price, which means need to consider the dynamic of inflation under different categories of inflation.As an endogenous phenomenon of economic structure, the inflation persistence becomes a central issue in academia recent years, which is related to how long the inflation sequence is impacted returned to long-term equilibriums. When one area’s inflation persistence is very high, that means monetary policy will be a lag on inflation. But in China the research about inflation persistence focuses on the total inflation. So this thesis base on the classification prices index and the overall inflation sequence, to research the similarities and differences about inflation persistence.This thesis takes consumer price index and classification price index as research objects from 2001 to 2014. First of all, using unit root test to detect every sequences the possibility of inflation persistence. Then, in order to measure the inflation persistence of each sequence, each data series were established series of autoregressive model(AR), using "grid bootstrap" method estimated auto regression coefficient of each model. Then, in order to analyze the internal mechanism of each classification inflation sequence, using factor analysis to extracting public factors. After that using the same method to measure the persistence of each factor. Then using the public factors to established vector auto regression model(VAR) with monetary policy variables, and combining the impulse response function to measure the impact of monetary policy on inflation.According to the empirical results of this research, the result of unit root test indicate that whether the overall inflation or the classification price index are likely to have a high inflation persistence. And according to measurement results of AR model, most of regression coefficients of the inflation sequence have reached more than 0.7. According to the factor analysis and the persistence of factors, and combined with Granger causality test results suggested that the inflation persistence in China mainly be caused by food prices and some industries which with strong wage stickiness. According to the display of impulse response function, because of the high inflation persistence, the impact of monetary policy on inflation sequence are delayed, price index return to the long-term equilibrium level will takes about 3-4 quarters.For the current situation of China, the adjustment of manufacturer’s price expectations is too slow and imperfect of central bank’s credit may be the cause of high inflation persistent. Under the conditions of high inflation persistent, the central bank on the one hand it need to enhance the preview of inflation in the future, on the other hand, it need to improve the transparency and credibility of the central bank. It’s can make the market have more accurate expectations actively for future inflation trends. In addition, there is also need to pay attention to the important merchandise categories impact on overall inflation trends.