Imported Bulk Commodities And Inflation

Imported bulk commodities and inflation have close connection. The price shock of the former will bring both the latter and economic growth slowdown to the economy, and this effect often goes beyond the control capacity of macroeconomic policies. At present, some of our bulk commodities have high import dependence, and our import market, financial market and economic policies have limited influence on the international commodities prices, resulting in the relatively greater exogeneity of import prices of bulk commodities. As the reform of RMB exchange rate is in full swing, we should think seriously of the following questions: How are the changes of imported bulk commodities prices? How will the changes affect the domestic inflation rates? What is the inflationary transmission mechanism of the price shock of imported bulk commodities? Whether the impact of the price shock is in the control of the macroeconomic management departments? The research of this paper is trying to find the answers to these questions.The research line is as below: firstly, choose the representative varieties of imported bulk commodities following the standard of import dependency, and conduct principal component analysis respectively within the two categories as resource products and agricultural products in order to construct indices measuring the changes of real prices of imported bulk commodities. Secondly, in the light of the structural characteristics and nonlinear characteristics of domestic inflation rates, use Markov-switching model to test the influence of several factors including the constructed indices on two inflation indicators and their relation under different conditions. Thirdly, further qualitatively analyze the inflationary transmission mechanism of imported bulk commodities price shock, including comparing the difference between two periods of transmission process, reviewing transmission mechanism separately and comprehensively, and exploring the changing factors and their impacts on the transmission mechanism, in order to deepen the connection between imported bulk commodities and inflation. Finally, under the assumptions of time-inconsistency, analyze the impact of monetary and fiscal policies shocks on the imported bulk commodities prices and inflation, in order to understand how macroeconomic policies can manage the inflation and promote economic growth in a rational and positive way.The research conclusions and innovations can be summarized as below: firstly, propose the solutions to the construction of imported bulk commodities import price indices, including analyzing the exogenous component of import prices, compiling statistics for bulk commodities import dependence so as to select their representative varieties, respectively extracting principal components of changes of real prices of resource products and agricultural products, and identifying the main influential factors of the constructed indices such as pricing mechanism, deposit ratio and etc. Secondly, extend the researches on the nonlinear variation of inflation rates, including using Markov-switching model to test the inflationary impact of the constructed indices, comparing the fitness and estimation efficiency of different models with different combination of dependent variables, independent variables and control variables, and finding out that the index of resource products has larger impact on the difference between consumer inflation rate and producer inflation rate than the index of agricultural products, and that when the industrial added value increases, the difference between the inflation rates will relatively narrow, and when the industrial added value decreases, the difference will relatively expand. Thirdly, generalize the inflationary transmission mechanism of imported bulk commodities price shock which has both symmetric and asymmetric mechanism through the supply side and the demand side, and identify the influential factors of the transmission mechanism such as demand elasticities, market sentiments and monetary policies, finding out that the inflation triggered by imported bulk commodities price shock is an event with high probability for a country with relatively weak monetary power. Finally, discuss the time-inconsistency problem and the choice dilemma for discretion, and empirically analyze the short-term and long-term impact of monetary and fiscal policies shocks and their second-round transmission for bulk commodities real import prices and domestic inflation rates using the TVP-FAVAR model, which has large information capacity and time-varying parameters to overcome the "price puzzle" arising from econometric model itself and break through the linear constraints between the variables of the model. It is proposed that expansionary fiscal policy should be chosen cautiously when the soar of bulk commodities prices breaks the beauty of high economic growth and low inflation, and the tax policy with automatic stabilization function should be tried to promote economic recovery at such moment.