Structural Analysis Of The Differences Between CPI And PPI Trends In China From 2002 To 2017

After 2002,due to China's accession to the WTO,the fluctuation of China's price level has become more sensitive,and even the trend of CPI and PPI is different.It is normal for CPI and PPI to show some difference in trend in a short period of time.However,CPI and PPI have the characteristics of large fluctuations and long-term trend differences,which shows that China's price level has been affected by different degrees of external and internal structural shocks.The difference between the two price indices will not only affect the healthy and stable operation of the economy,but also bring great challenges to macro-control.Therefore,this paper attempts to explore the external causes and intrinsic nature of the differences between CPI and PPI from the perspective of external and internal structural shocks.The asymmetric impact of structural shocks on CPI and PPI is the fundamental reason for the difference between them.Firstly,this paper divides the impact into two categories: one is external structural shock,including supply shock and demand shock;the other is internal structural shock,including food price shock and non-food price shock of CPI index,production material price shocks and livelihood price shocks.of PPI index.Secondly,different shock simulation values are obtained by using the state space methods of matlab,Eviews software and Kalman filter.Finally,from the perspectives of long-term fixed impact and short-term time-varying impact,the structural impact factors of CPI and PPI are introduced into the follow-up empirical research.It is found that(1)supply shocks and demand shocks to to different degrees are the key external factors that lead to the persistent trend difference between CPI and PPI.Demand shocks have a greater impact on PPI in the short term,and have a greater impact on PPI than CPI;supply shocks have a greater impact on CPI in the long term,and have a greater impact on CPI than PPI.(2)The difference between non food price shocks and production material price shock is the internal cause of their differences.This paper focuses on the "trend difference" between CPI and PPI rather than "deviation".Many related literatures only start from the "deviation" of the two indicators,and analyze the deviation of an indicator rising and falling in a certain period.This kind of partial analysis of the short-term behavior of the economy leads to a split thinking.It is difficult to form a holistic vision of how the overall economy responds to changes in external shocks.The DSGE method is devoted to explaining the general economic phenomena and the causes of short-term fluctuations in the economy.Therefore,this paper designs the aggregate demand model from the perspective of individual optimal decision-making: deduces the optimal consumption equation based on the maximization of consumer utility;deduces the optimal investment equation based on the maximization of future profit of the manufacturer;deduces the optimal government expenditure equation based on the minimization of government management cost;and deduces the optimal net export equation by introducing international trade and capital flow.All shocks are considered as random variables that cannot be predicted before they occur.This is the root cause of short-term fluctuations in CPI and PPI.Once all the shocks on the economy have been fully acted upon,the economy will be in a stable state again.Therefore,the model constructed in this paper can be applied to explain the whole economic period,and the "trend difference" between CPI and PPI can summarize the characteristics of its fluctuations in different periods.This paper improves Zhang Xiaolin's(2018)research ideas and extends them to open economies,thus correcting the erroneous research results that short-term demand shocks have greater impact on CPI than PPI.This paper constructs an AS-AD Dynamic Model in an open economy.On the one hand,this paper introduces the dimension of international market and external sector(net export,exchange rate fluctuation and foreign price level)to examine the aggregate demand model(consumption demand,investment demand,government expenditure and net export)of four-sector economies.On the other hand,this paper extends the New Keynesian Phillips Equation to open economies,and introduces interest rate parity conditions to construct the aggregate supply model.Foreign sectors play a vital role in the economy as a whole,because they change the resource constraints of the economy.In open economies,many new problems and variables will arise,which greatly complicate our basic model.The results of this study also confirm that several large-scale demand shocks have a stronger impact on the fluctuation of PPI index,so the research methods and ideas in this paper are superior.