The Feasibility Analysis Of Price Level Target System In China

Since the subprime crisis in the United States,the world economy has experienced sustained low interest rates,low inflation and low growth.This paper discusses whether the traditional monetary policy fails and whether there are other better objectives of monetary policy.The report of the 19 th National Congress of the Communist Party of China clearly points out that monetary policy and macro Prudential policy are important means to achieve the four goals of macroeconomic stability,price stability,economic growth,full employment and balance of payments.Maintaining market price stability is related to national welfare.In this paper,we take price level target making as the research object,take our country as the research object,construct feasible index and monetary policy operation mode,and analyze through the new Keynesian model,finally prove that choosing price level target system can make the price level more stable.Firstly,this paper combs the process of proposing and developing price level target system,and compares the trade-offs between inflation target system and price level target system in different countries Targeting)is a system that has been proposed repeatedly but never been realized.By explaining the experience of Sweden in the last century,this paper clarifies the basic idea of price level targeting system,and then compares price level targeting system and inflation targeting system by simulation.It is found that inflation targeting system can promote output better without considering the real world impact,but with the real world uncertainty impact With the increase of inflation,the central bank promises that the price level will be obviously due to the inflation targeting system.Therefore,this paper hopes to put aside the constraints of inflation targeting system,and change the price level stability advocated by the price level targeting system as the ultimate goal of monetary policy.First of all,this paper makes clear the meaning of the two;the ultimate goal of price level targeting system is price level stability And directly aim at the price level of the base period,for example,fix the price at an absolute value.Although the ultimate goal of inflation targeting system is price stability,it aims at low and stable inflation,which is like fixing prices at a relative value.By combing the adjustment ideas of monetary policy after the exchange rate reform in 2005,combined with the policy of RMB pegging to a basket of currencies,the final research will focus on the practice of exchange rate policy pegging to commodity prices,and such research design is inspired by Zhang Wuchang.The research design is as follows: starting from the formula of PPP theory,this paper calculates three kinds of nominal effective exchange rate indexes(Neer)which consider price stability,namely,fixed price level,inflation rate 2% and PPI,and makes a comparison between these three indexes and the market situation of effective exchange rate index which do not consider price stability.The empirical results are as follows:(1)The price index contains macroeconomic price information.Considering price index when choosing monetary policy helps to make macroeconomic policy in China.The empirical results show that the trend of three kinds of exchange rate index considering price is opposite to the current market situation.The former means to implement relatively neutral monetary policy,while the latter means to implement loose monetary policy With the continuous improvement of the financial market,the function of price as a market signal is becoming more and more significant.Adding China's monetary policy to the price index will help achieve the goal of stable macroeconomic growth.(2)The standard deviation of the three kinds of exchange rate indexes considering prices is small,which means that they can both fix prices and stabilize exchange rates.In order to keep the analysis results stable,after comparing three different indexes,it can be determined that these three indexes contain the information needed by policy makers.According to the theory of purchasing power parity,the exchange rate change is determined by the change of purchasing power(price)ratio of the two countries By comparing three kinds of exchange rate indexes considering price,it is found that when price is added to the exchange rate index as an important information reflecting the real economic factors,the price level and exchange rate index will further stabilize.(3)At present,China's market mechanism is further improved,the capital market is further expanded and opened,and the price mechanism is constantly mature.Therefore,the exchange rate index considering the price level is worth trying as a tool for China's monetary policy to stabilize economic development.(4)On the basis of further expanding the decisive role of the market in resource allocation,the price level target system is taken into consideration in China's monetary policy to stabilize prices.Therefore,as a policy suggestion,this paper believes that the price fixing exchange rate policy is worth trying.