A Study On How Inlfation Expectations Affcct Chinas’ Monetary Policy Effectiveness

Monetary policy are the guidelines and policy measures taken by a central bank ormonetary authority to achieving certain macroeconomic objectives through regulatingand controlling monetary policy tools. With the development of the theory of monetarypolicy, a large number of experts and scholars have done their research on theeffectiveness of monetary policy from different angles. Considering the growing publicexpectations of inflation in China recent years, this article will use that as startingpoint to study the impact of inflation expectations on monetary policy effectiveness.This research has guiding significance for improving effectiveness of monetary policyin China.Based on the fruit of research at home and abroad, this article analyzes the impactof inflation expectations on the effectiveness of monetary policy from two aspects:theoretical and empirical. First of all, we gives a brief introduction of inflationexpectations theory and the theory of monetary policy effectiveness. Second, wedefines monetary policy effectiveness and elaborates the transmission mechanism ofhow inflation expectations can affect the effectiveness of monetary policy. Then, weanalyzes how inflation expectations influence the efficiency of monetary policy in fivetypical period of China. After that, we studies related figures in a empircal way. Ourfindings are that in the sample intervals, both inflation expectations and real inflationor inflation expectations and economic growth have show a positive long-termcointegration relationship and there is a certain lag of the impact that inflationexpectation exert on the above two factors. Finally, we concludes that inflationexpectations of our citizens can influence the effect of the utimate goals of monetarypolicy. That means inflation expectations will affect monetary policy effectiveness.In the end, the article provide the following policy recommendations on how toimprove the effectiveness of monetary policy: Firstly, restrain the increasing trend ofprice level through the control of money supply and money demand and properlymanage the inflation expectations; Secondly, actively and steadily advance themarketization of interest rates to improve the efficiency of monetary policy; Thirdly,strengthen the credibility of monetary policy by improving communication betweenthe central bank and the public; Finally, minimize the internal and external delay ofmonetary policy by enhancing the independence of central banks and the sensitivity ofthe market players.