Imported Inflation Of China: An Analysis On Its Pass-through Mechanism And Demonstration

When china is on the path of open economy, inflation is no longer simple economic phenomenon; since the reform and opening up of China's economy, as well as the evolving export-oriented economy and encouraged foreign investment policy, China's current account and capital account appear both surplus, the amounts increase year by year. After decades of development, China's economy has been more into the tide of globalization, and domestic market and international markets become more closely linked, thus the domestic price level is easily affected by international inflation factors, imported inflation turns into the focus of scholars.The second chapter makes review on the literature of imported inflation. Firstly, make conclusion of the theory about inflation based on Keynesianism, monetarism, structuralism and rational expectation theory. Upon these theories found that upward trend in price levels in China was under macro-environment of the global imbalances, financial crisis, awash with mobility, uptrend of commodity prices and the development of China's real estate market and capital market in recent years. Therefore decide to make research on imported inflation from the trade channel and capital inflow channel.In the third chapter, make analysis on the pass-through mechanism of imported inflation through trade channel, and found out degree of openness will affect domestic inflation level, the higher degree of openness, the more inflation is. After that, choose time series sample from January 2006 to December 2010, build up two VAR models to study how prices of crude oil and grain in the international bulk commodity market import inflation along value chain. Finally, give explanations aimed at the discrepancies among the results of these two models.In the third chapter, make analysis on the pass-through mechanism of imported inflation through capital inflow channel, and divide it into FDI and hot money according their nature. On one hand, FDI could lead to increase of ancillary facilities, domestic investment and Trade openness which may arouse inflation; and on the other hand, hot money could affect price level by cost pass-through mechanism, Tobin Q effect. Then using monthly data from 1998 to 2010, investigate how much trade, FDI, and hot money could explain the change of price level.In the fifth chapter, according to the output of upper studies in chapter three and four, make some proposal to fight inflation, including changing composition of international trade and status of international division of labor, guiding the direction of FDI, looking for substitution of source of energy and so forth. Finally, put forward cooperation of different country towards inflation.