Dynamic Analysis On International Transmission Of Inflation

With the development of economic globalization,the relationship between the countries is more and more closely,When one economic variable of a country occurs fluctuation,This fluctuation can be transferred to other countries by the way of capital flow,investment and international trade.In 21 st century,the degree of economic globalization is further deepening.With expanding trade between the countries,more and more frequent between international capital flows,inflation is a significant correlation,and International transmission of inflation has become a global problem.At present,the impact of foreign economic factors on China's inflation is bigger and bigger,so when we are formulating policies to coop with inflation,to distinguish between domestic and foreign elements to the impact of inflation and understand foreign elements generate inflation international transmission mechanism has important significance.This paper use the data of China and USA,Japan and the euro zone whose trade with China is big.We analysis of the four countries and the area between the inflation of the transmission mechanism by Using the quarterly data from 2006 to 2015 of the countries,applying VAR model and establishing VAR model several times.With China as the research object,we use the method of variance decomposition to analyze the contribution rate of China's inflation of the domestic economy and foreign economic elements.First,this paper introduces the background of the problem and reviews the related literature.Then we introduce relevant theories of international transmission of inflation by different schools and summarize three pathways of international transmission of inflation.At last we analysis the relationship of inflation between the four countries by demonstration and summarize the conclusionsWhen international crude oil price changes,the price index level of China,Japan,America and the Euro area will rise.The influence of global steel prices on the price level of China is much larger than the developed countries like Japan,and the euro zone's countries.In the short term,the impact of exchange rate of inflation is small,but through variance decomposition,the exchange rate with the increase of nper,its contribution rate is higher and higher,it shows that in the long run,exchange rate is an important factor affect inflation.The impact of inflation in China by the changes in money supply of the United States,Japan and the euro zone is much larger than the impact of the between the three,and the change of China's money supply to the three countries or regions of the impact of inflation is extremely weak.Domestic factors is the main cause of China's inflation,the global steel prices are also able to significantly impact on China's inflation.But in the medium to long term,foreign economic factors influence on China's inflation will gradually strengthen,these factors impact on China's inflation should not be neglected.