The Core Inflation In China:Measurement,Characteristics And Application

Compared to the headline inflation which commonly used to stand for acountry’s common price level, core inflation reflects the potential change trend of theprice more appropriate. It is an important reference index when making monetarypolicy.First of all, refer to the practice of foreign scholars’, this thesis measures therecent17years’ core inflation of our country through the wavelet method. Comparedwith the headline inflation, the core inflation in line with the actual conditions of ourcountry’s price changes better, it is more useful in predicting future price changes andmore accurate in reflecting the underlying adjustment trend of the price.Then, under the premise of core inflation’s nonlinear stationary feature, thisthesis establishes the exponential smoothing transition autoregression model, obtainsthe specific form of core inflation’s two regimes nonlinear structure and analyzes thenonlinear dynamic switching mechanism between them.Thirdly, on the basis of ESTAR model, this paper divides core inflation into fourregions and analyzes the nonlinear adjustment between inflation and deflation. Thisarticle finds out that the macro-control policy is effective, but it has lagging effect.Because of the international factors’ influence, we still have a lot of things to do.According to the division of the regions, it is estimated that the core inflation ratewould be mild in2012.Finally, through the establishment of the VAR model, this thesis analyzes thereflection of monetary supply and interest rates to headline inflation and core inflation.The results show both of them have the same trend, but the changes’ amplitude andthe duration are different. In the conclusion we suggest that headline inflation andcore inflation should both be considered when making monetary policy. This thesis verifies the nonlinear structure of our country’s core inflation;analyzes the macro-control policy and obtains some important conclusions.According to our research, we put forward some suggestions for the management offuture inflation and provide reference to formulate effective monetary policy.