The Empirical Analysis Of Chinese Imported Inflation

With the improvement of China’s opening up and growing trade and financiallinks with the rest of the world, it is crucial and imperative to analyze the effect ofinternational factors on inflation in China. This article will carry on the discussion onwhether there is any relationship between China’s inflation and international factorsand if there is, how much it is and how international factors conduct.Firstly, this paper will describe and analyze China’s inflation, foreign trade andinternational primary product price. Then puts forward two kinds of the importedinflation transmission path, which are money supply path and price path.Secondly, this paper studies Chinese imported inflation empirically byconducting the latest nonlinear Granger causality test method set forth by Diks andPanchenko, to study how international factors conduct China’s inflation through themoney supply path and price path.The money supply path is to study the relationship between China’s foreignexchange reserves and price level. The results of static analysis show that there isn’tany Granger causality relation between foreign exchange reserves and inflation; theresults of dynamic analysis show that the influence of the foreign exchange reserveson the inflation has become more and more enormous with growing surplus of theCapital and Financial Account, and there is Granger causality relation between foreignexchange reserves and inflation since2003.The price path is to study the relationship between international primary productprice and China’s price level. The results show that the influence on PPI caused byCRB is remarkably larger than the influence on CPI caused by CRB, and theinternational energy prices and metals prices have significant effects on PPI. Inaddition, the international agricultural products prices have significant effects on CPI.On the basis of above analysis, the author put forward some recommendationagainst imported inflation.