China's Inflation And Monetary Policy Research From 2007-08

Against to the inflation from 2007 to 2008, China's central bank adopted a serious of measures. And these measures had achieved certain effects which indeed eased the pressure of excess liquidity to some degree. However, due to the existence of differences in economic structure, tightening of monetary policy had not fundamentally solved the problem of inflation, and on the contrary, it had made the monetary policy into a new dilemma. Through the analysis of inflation in Japan from 1973 to 1974, as well as a comparison with China, combining the characteristics of China's current inflation, this paper proposes corresponding reform measures and also provides a theoretical basis and practical experience for future prevention and control of such inflation.In this paper, the chief thread is the mutual relationship between the money supply (M₂) and the consumer price index (CPI). It mainly researches and resolves the following issues:First, this paper analyzes the major performance and features of the current inflation. Inflation is specifically reflected in the continuously rising of consumer price index, retail price index, primary product prices and asset price index. And its main feature is that RMB devaluate within but rise outside. This comes from not only the existence of structural differences, but also the expectation of inflationary and other factors.Secondly, this paper analyzes the reasons of the current inflation, and then gives some quantitative analysis. The main reason is excess liquidity in the currency and imbalance of economic structure. The excess liquidity is the direct cause, and structural imbalance is the root cause. The quantitative analysis of the causes of inflation shows that food price index and expectation of inflation have a positive correlation with the current inflation.Thirdly, this paper analyzes the monetary policy and measures that China's central bank adopted to deal with the current inflation, and then demonstrates the effectiveness of monetary policy. Since the existence of imbalanced economic structure, tight monetary policy made the original lack of liquidity on consumption become tighter. Its effect was not very satisfactory and created new plight. Therefore, we need to sum up the lessons and adjust our policy.And then, this paper analyzes the inflation occurred in Japan during 1970s and the monetary policy they taken, and compares the similarities and differences of the inflation between two countries. It also sums up Japan's monetary policy in controlling inflation in order to help China to learn.Finally, for the characteristics of the current inflation such as excess liquidity, structural imbalances and the existence of expected factors, this paper puts forward to strengthen the financial system and further promote market-oriented reform on the interest rate and exchange rate, speed up economic restructuring, solve economic imbalances, as well as the central bank regularly publish data on the economy and other measures, and provides a theoretical basis and practical experience for the future management of inflation.