China’s Inflation Inertia Characteristics And The Monetary Policy Adjustment

Inflation is an important index of macroeconomic, relates to the stability of the national economy and the standard of living condition, therefore, how to manage and govern inflation to guide price fluctuate at a reasonable level has always been a big problem to the monetary authorities. The dynamic characteristics of inflation and the effect of monetary policy has also been a focus of attention in academic circles, the study of inflation inertia is an indispensable aspect. Inflation inertia has important influence on the effects of monetary policy and directly related to the social costs of the central bank’s anti-inflation policy.From the perspective of the sources of inflation inertia, this article divides inflation inertia into three kinds innovatively:internal inflation inertia based on wage and price decision mechanism, expected inflation inertia based on inflation expectations, external inflation inertia based on the external macroeconomic environment; By reviewing the development of the core theory of inflation-the Phillips curve, this article choose the mixed new Keynesian Phillips curve as the theoretical basis of the inflation inertia analysis; Introduces the inflation inertial measurement methods and their respective advantages and disadvantages; Analyzes the relations between the inertia of inflation and monetary policy by analyzing the development of the Quantity Theory of Money and the transmission mechanism of monetary policy, chooses output and money supply as the important intermediate variable, also lays the foundation of the empirical part of the analysis.This article uses dynamic autoregressive model (AR) to estimate the inflation inertia of China on the sample interval (1996-2013), uses scroll interval sample estimation method to analyze the dynamic change of inflation inertia, and combining the Quandt-Andrews unknown breakpoint test and Zou test method analysis model, does further study on characteristics of inflation inertia changes before and after the breakpoint; uses VAR model to analyze the impact of economic growth and money supply growth on inflation from the aspects of the strength of the impulse response, by the contrast analysis between the actual output gap and inflation historical data, provides reference on the time of monetary policy. Through empirical analysis, concludes that:the inertia of inflation has been at a high level; Thanks to the market price mechanism and the improvement of monetary policy transparency, inflation inertia structure changes at the end of 2003 and decreases significantly in recent years; The money supply has a obvious impact on inflation, and the effects lag for two years, the biggest impact appeared in one year’s lag, show that changing the money supply can effectively control inflation, but the policy should be implement more than one year ahead of time; The effect of economic growth on inflation is relatively weak and last for more than one year; Growth accelerating will effect price, but not necessarily bring serious inflation; When determining the adjustment of monetary policy, The central bank should consider the historical data of the output gap and inflation to ensure the dual goal of economic growth and price stability.