Analysis On Inflation Expectation Disequilibrium In China

The public could not estimate the inflation accurately, because the inflation expectation is uncertain and horrific, as well as the public's bounded rationality, which leads to the inflation expectation disequilibrium. Especially when the economy falls into the inflation traps, the inflation or deflation could be more serious. So, this paper does believe that concerning on the inflation expectation disequilibrium is as the same important as paying attention to the inflation itself. Taking the inflation bias into account, this paper did some research on the inflation expectation disequilibrium problem in China, and reached some theoretical and practical conclusions.This paper argued that the time inconsistency of the monetary policy and the bounded rationality of the public caused the inflation expectation disequilibrium. And combined with the new Keynesian model and the monetary policy objective function, this paper proved that the inflation expectation was disequilibrium indeed. With the sample from 2000 to 2014 in China, this paper empirically researched on the problem of inflation expectation, and concluded that the public's inflation expectation is bounded and disequilibrium. Further more, this paper empirically researched the formation and the causes of the inflation expectation disequilibrium in China. And the inflation traps existed over the past 14 years in China.