China’s Monetary Policy Framework Research Based On The Inflation Targeting

Inflation targeting was introduced into the system of monetary policy framework during the lately 1980s and has a history of over 20 years up to now. It has played an active role to guide inflation expectations, reduce the level of inflation, enhance the transparency and credibility of monetary policy and stabilize output. The successful policy practice of inflation targeting in Western countries with its institutional advantage cause it become the most popular monetary policy framework, but it has become the guideline of reforming the existing monetary policy frameworks in many countries at the same time.Now, our country adopts the monetary policy framework which makes the money aggregates as the nominal anchor. Seen the policy practice of the Chinese monetary policy framework, we can know that our current monetary policy framework in our country is not well in response to economic shocks along with economic globalization and financial innovation. Because of the using of the tools of monetary policy to adjust the economy, the future economic uncertainty is been increased. At the same time, our current monetary policy framework haven’t high effectiveness in stabilizing the price level or promote economic growth or in other ways. The result computed by stochastic frontier analysis based on transcendental functions also proves that the level of monetary policy implementation efficiency under China’s current monetary policy framework is not high. The reasons behind the reason, is mostly because of our monetary policy goals without a clear description and definition, the money supply of our country appearing obvious problems in the testability, controllability and relevance, and monetary transmission mechanism not working effectively.The inefficient of the current monetary policy framework influence the economic development of our country, so we need to make a choice and begin to change. Under these circumstances, inflation targeting which has a forward-looking operating mechanism of elastic provides a good reference for the reform of China’s monetary policy.Both the defects of the current monetary policy framework itself and the system advantages of inflation targeting determine that the choice of inflation targeting has certain rationality and necessity for China’s monetary policy framework. In order to make our current monetary policy framework for a smooth transition to inflation targeting, we can perfec the system from several aspects:first,to deepen market-oriented reform of the RMB exchange rate system continuously; second,to enhance the stability of the financial system; third,to improve the financial situation.