Measure Of Residents Inflation Affordability And Stress-testing Research In China

Inflation has been the focus of attention of domestic and foreign economists. On the one hand, inflation makes the price signal distortion, damages the price adjustment mechanism of market economy, resulting in the dislocation of social resources. On the other hand, inflation will reduce real disposable income of residents, even generate money illusion, increase the living pressure of people, affect the resident’s rational choice of economic behavior. At the same time, it is also an important reference for government to make macroeconomic policy. Therefore, it is of great practical significance to study inflation.Since the2008financial crisis, the world economy, including China was affected by this downturn, and the Chinese government firmly implemented a proactive fiscal policy and moderately loose monetary policy. China’s consumer price index (CPI) changed from negative to positive since November2009. In2010the average CPI reached3.3%, above the government inflation target3%. The domestic price level continued to rise, and reached6.5%in July2011, obviously exceeded the government inflation target4%, while China has entered a new round of inflation.In this background, based on the review of related literature, this paper retrospects the previous inflation since the reform and opening-up, and has carried on the comparative analysis of its reason, which found that the causes of inflation in China had undergone fundamental changes, due to changes in the environment at home and abroad since the reform and opening up. The reality of China’s economic transformation and upgrading leads to the cost increase; complex external environment changes, such as the implementation of quantitative easing monetary policy in major economies, international commodity rising prices and other factors led to imported inflation, and the governmental preference for the economic growth target and so on, all these decide that inflation in China has a long-term feature, so does the corresponding Chinese government anti-inflation. This means the government with preference for the economic growth will have to make trade-offs between economic growth and inflation. In China, government-oriented economic growth mode means that the government will sacrifice the inflation target in a certain extent to achieve economic growth, but inflation can’t exceed the tolerance level of the society, so the basic orientation of the government macroeconomic policy is to make control of inflation within the affordability range of the society or the residents on the premise of economic growth target. So how much is residents’ tolerance of inflation? This is the fundamental basis of argument and the main research content of this article. Based on the corresponding theoretical analysis, the paper gives out the quantifiable measures of residents inflation affordability by establishing the residents inflation affordability indicator. At the same time, by drawing on the basic idea and analysis method of macro stress-testing (a widely used tool in the analysis of the stability of the financial system), the paper explores the problem of resident inflation affordability from aspects of common Chinese, urban and rural residents, as well as the residents from different regions in China respectively. On this basis, macro stress-testing analysis is employed on above-mentioned three category in order to provide fundamental basis of quantity interface for government to make policy on the trade-off between pro-growth and anti-inflation.The text is divided into8chapters, the main contents are as follows:The first chapter introduces the research background, research significance, research contents, research methodology and the innovation of the paper.The second chapter is the relevant literature review. This part includes the related literature review of the theory of inflation, the theory of inflation affordability and the theory of macro stress-testing. For the literature review of inflation affordability, it mainly retrospects the literature of the impact of inflation on the residents’ income, wealth, and the psychology, as well as the impact of inflation on consumer behavior, investment behavior. Review of the literature for macro stress-testing, overviews the related theories of the research methods of macro stress-testing and the stress-testing models at home and abroad, and summarizes the practice of macro stress-testing at home and abroad.The third chapter first reviews all previous inflation since reform and opening-up in China, elaborates each inflation performance and the government’s measures to prevent inflation.Then deeply analyzes and compares the reason of all previous inflation in China. It is found on the basis of the analysis in above content that the environment affecting inflation both at home and abroad has greatly changed since the reform and opening up. These changes made inflation in China with long-term characteristics, thus the corresponding govern-mental management for inflation has the same feature. The government’s preference for the economic growth target is bound to sacrifice the inflation target. However, how much sacrifice in the end will depend on the social or resident inflation affordability.The fourth chapter first builds up the main measurement index affecting residents inflation affordability by scientifically defining the conception of residents inflation affordability. Then through in-depth analysis of the measure index of the residents inflation affordability, and further refines the important factors affecting residents inflation affordability.Based on this, Chapter4builds up residents inflation affordability model by drawing on the macro stress-testing model in financial system. Specifically, It transformed the risk affordability of the financial system into the residents inflation affordability, with residents inflation affordability indicators as the explained variables to measure inflation affordability of the residents. It also establishes a multiple linear regression model with macroeconomic indicators as explanatory variables, which affect residents inflation affordability.Then measure indicators of residents inflation affordability are built, namely solving measurement problems of explained variables in residents inflation affordability model. The article borrows pure price factor extracted from Slutsky Equation, and builds residents inflation affordability indicators through some mathematical analysis and transformation.According to residents inflation affordability model, Chapter5has carried on the empirical analysis of residents inflation affordability in China from the perspective of total analysis. It digs out the important macroeconomic factors influencing residents inflation affordability, carries on the stress-testing analysis, and puts forward the corresponding policy recommendations in the end.According to residents inflation affordability model, Chapter6further analyzes urban and rural residents inflation affordability in China from the aspect of urban and rural structure, and carries on comparative analysis of inflation affordability measure and stress-testing.According to residents inflation affordability model, Chapter7further analyzes residents inflation affordability in different regions of east, central and western of China from regional perspective, and carries on comparative analysis of different regional residents inflation affordability measure and stress-testing.Chapter8, mainly summarizes the paper’s conclusions, and gives a farther research prospect for the further analysis of inflation affordability from the aspect of income group, age group, education level group and so on.The innovation of this paper includes the following items:(1) Define residents inflation affordability measure indicators scientifically. Some scholars in current academic circles have explored the issue of inflation affordability indicators already, but usually stay at the discussion level. They did not build corresponding inflation affordability measure indicators. The paper borrows pure price factor extracted from Slutsky Equation, and builds residents inflation affordability indicators.(2) Quantitative analysis of residents inflation affordability in China. Since measure indicators of residents inflation affordability are not put forward, there are no quantitative analysis of residents inflation affordability carried on either.On the basis of building residents inflation affordability model and residents inflation affordability measure indicators, the paper carries on the quantitative analysis of inflation affordability of residents in China, urban and rural residents in China, east, central and western residents in China respectively.(3) Borrowing the ideas and methods of stress-testing of commercial banks in financial field, the paper establishes residents inflation affordability model, and carries on pressure test for residents inflation affordability in China, which is a precedent in the inflation field of research.