The Analysis On The Suitability Of Inflation Targeting In China

Since 1998, our country gave up the credit system and implemented a monetary policy using the money supply as its intermediate objective. Then our macroeconomic situation kept in stable operation and the economy has achieved rapid development. However, with the rapid development of China's finance and economy, the relevance of the money supply and the inflation rate which is the ultimate goal of their own money supply, and the controllability and the testability of the money supply itself have also been increasingly questioned. From 2003 to now, China's Consumer's Price Index (CPI) has been rising. Overall, the risk of future price is more possible to move upside than to move downside, and the inflation pressures appear.Based on the above analysis, this paper suggested that we should learn from the inflation target monetary policy of the western countries in the late 20th century to offset the current shortage of our monetary policy. This paper studies the operation and the practical experience of the inflation targeting mechanism to analyze the applicability of the inflation targeting regime in China.The article first reviews the present status of the inflation targeting system and introduces the conditions and the superiority of the inflation targeting system in theory; then it summarizes some experiences and lessons of different countries, through analyzing the countries that implemented the inflation targeting system. In the fourth section, the paper analyzes the applicability of using the money supply as the intermediate target of our monetary policy at present, and put forward that the relevance of the controllability, testability and the ultimate goal of the money supply has betrays far from the original expectations. The fifth part of this article discusses the condition of implementing the inflation targeting mechanism in China and brings forth that the inflation targeting system will become a trend of China's monetary policy reform on the basis of analysis. Then it suggests how should the monetary policy use the results of the theoretical studies of inflation targeting and the experience of different countries to resolve the difficulties in carrying out the current Chinese monetary policy. Finally, it puts forward relevant policy recommendations.