A Research Of Inflation Dynamics In China Based On NKPC Model

Price stability is not only related to every aspect of people’s lives, but alsoaffects econo mic behaviors d irectly, suc h as investment, consumptio n and savings,and thus will affect the vo latility o f econo mic growth. Whether government andcentra l bank can make a more reliab le ana lys is on the dyna mic of inflation formationand deve lopment will influe nce the direction and inte ns ity o f macroeconomic polic ydecis ion-making in line with the needs of the actua l econo mic situation. The purposeof this paper is to analyze influenc ing factors of inflatio n dyna mics and relationshipsbetween them and inflation in China.Firstly this paper introduces the rele vant inflation theory of the Keynesia n, andthen introduces the deve lopment and evo lution of the Phillips curve model, focus ingon the characteristics of the New Keynesia n Phillips Curve Model. On the basis oflearning and drawing references fro m existing research results of previo us scho lars,this paper develops an amended form of the NKPC Model, according to the actua lsituation of Chinese economic developme nt. The cons umer price index, the outp ut gap,inflation expectations, market interest rate and excha nge rate fluctuatio ns are inc ludedin the model in order to research on the inflatio n dyna mic changes in China. And thenthe author ana lyzes the dynamic relatio nship between the ma in factors affecting theinflation cha nges and inflatio n. Firstly, GMM estimation method is used to get apreliminary estimate of a simp le linear model, and then a SVAR model is bui ltaccord ing to the macroecono mic theory and actua l s ituation o f econo mic developme ntin China, fina lly the SVAR model is estimated in order to get imp ulse responseanalysis and the variance decomposition of variables in the model.Based on analys is results, it can be conc luded that inflatio n inertia, the public’sinflation expectatio ns, the output gap and factors etc. have a great influence oninflation, while interest rates and exchange rates will have an impact on inflationfluctuations. According to e mpirica l conc lus ions, this paper provides several polic iesto contro l inflation in severa l aspects: a clear policy objective, fle xib le mo netarypolic y imple me ntation, supporting fisca l policy as well as measures of restrainingpersistence of the inflation.