The Empirical Research On The Inflation Persistence Of China

The main duty of the center bank in every country is to establish and carry out the optimal monetary policy. From the model of the monetary economics, the main objective of the center bank is to stabilize the output and control inflation. So how to establish the optimal monetary policy is to allocate the weight to these two objectives, which depends on the inflation persistence. In other words, the inflation persistence would have influenced how to establish the optimal monetary policy. This is why this subject has been paid more and more attention by the economic researchers and monetary policy makers.From the perspective of monetary policy framework in our country, we have experienced two phases, the first phase is from 1984 to 1997, in which the intermediary object aimed on the credit scale, and the center bank mainly adopted the direct instrument of regulation, the second phase is from 1998 to the end of the last century, in which the intermediary object aimed on the monetary supply, and center bank have adopted the indirect instrument of regulation. But now this monetary policy strategy has been doubted more and more in the economic research field, most of the economists turn to find better monetary policy framework which would fit our economic circumstance. On this surrounding, the "inflation targeting "was noticed and argued widely in our country. So now it is necessary to do thorough analysis on the inflation persistence.In the view of this, the paper characterizes statistical nature of China inflation persistence. Firstly, we test the structure mutation point by exogenous Structure Mutation Test. Then based on the above result, we do the empirical analysis on the inflation persistence both on the whole sample and sub-sample. The final result show that the mean of the inflation rate have appeared a structure mutation point in nearly the end of 1994, and the inflation persistence appears highly when inflation is high, but decreases significantly in the period of low inflation. On the basis of the empirical result we got, we compare the similarity and difference of the inflation persistence between in Euro area and China. On the end of the paper, we review the process of the monetary policy practice, then we make a description of the "inflation targeting" which is popular in the world, combined this monetary policy and the empirical result in our paper, we demonstrated some directive clue to the monetary policy.