Research On The Main Incentive For The Recent Inflation Of China

In2007, the financial crisis broke out in the worldwide. In order to cope with theeconomic problems caused by the financial crisis, governments have taken a series ofpolicies to stimulate the economy. With the gradual recovery of the global economy, anew round of inflation broke out in the worldwide. In such an international background,China can not been spared also, Inflation problems have seriously affected people’s dailylives and the development of national economy. Therefore, a correct understanding of theinflation, finding out the reason for the current round of inflation, and targetedgovernances have a very important practical significance for the rapid, sustained andhealthy development of China’s economy.Through reviewing the inflation theories and researching the economic situation ofChina’s previous inflation, combined with the current international background,summarized the distinction and connection of the new round of inflation and previousinflations. Through in-depth theoretical analysis, to point out a variety of economicfactors that may lead to inflation, and to analyze the way how each of the factors lead toinflation. And this paper investigated the impact of the structural determinants to theinflation.By using monthly data, the paper has made an in-depth empirical research on theabove economic factors which may lead to inflation. In the whole empirical analysisprocess, paper has used Unit Root Tests, Granger Causality Test, Johansen Cointegration,Vector Error Correction Model, Impulse Response Function and VarianceDecompositions etc. Through observing the data, graphs and charts, trying to make thewhole analysis process detailed and clearly.Through theoretical analysis and empirical analysis, the paper eventually draw thefollowing conclusions: In the long term, the increased prices of the raw materials, theexchange rate of RMB-dollar, the differences in economic structure, the currency overand the import and export issues are all the reasons of the current round of inflation. In the short term, the foreign exchange reserves have the most obvious impact on inflation.At the same time, there is a huge inertia in the new round of inflation. In addition, theimpact of the investment factor to the inflation still cannot be ignored. Therefore, tocontrol the current round of inflation should pay attention to the factors above, and takeeffective measures.