Analysis Of The Causes Of Inflation In The Subprime Crisis

China has experienced2rounds of inflation since the beginning of the subprimemortgage crisis, which pose a big challenge to China’s good and steady economicdevelopment. This paper presents an analysis on the cause and development path ofChina’s inflation issue, which is of great significance to reasonably control inflation inthe future. The paper firstly gives a theoretical analysis of China’s inflation and findsthat China’s inflation, on the one hand, was caused by its expansionary fiscal policyand quantitative monetary policy aiming to stimulate the economy, and on the otherhand, was influenced by the external shock, which comprises of the increasing priceof commodities and the Quantitative Easing Monetary Policy (QEMP) implementedby the U.S. Federal Reserve. Using emperical method-VAR to study the deformulatedTriangle Model put forward by Gordon after the theorectical analysis, the thesis paperhas found that inflation expectation contributes to the inflation the most, internalshock constitutes an important reason to inflation, and external shock, though lessthan internal shock, also has its role in the formulation of inlfation. QEMP has arelatively strong negative spillover effect on China’s economy. At the end, the papergives suggestions on inflation management based on above analysis.