Capacity Utilization And Inflation

The central bank issued "the third quarter monetary policy implementation report of china during2014" shows off till the end of September, the balance of broad money supply(M2) increased by12.9percent points. The central bank said the growth of current M2is4percentage points higher than the growth of nominal GDP, significantly exceeded the average of2000-2013years (after excluding the special2009the data is only1.5percentage points). Stock of M2has exceeded120trillion yuan, the value of M2/GDP is about200%, which has surpassed the United States,but the average inflation of China from2000to2013is2.32percent, a relatively low level and keep fluctuate smoothly in the rage of2to3percent. According to the view of the monetarist School:the continuing inflation is a monetary phenomenon, which is due to the increase in the quantity of money than the growth of total output caused. So how to explain this strange phenomenon of the coexistence between Super-currency and low inflation?This paper refence Alvarez-Lois’s (2000) article which contains the capacity utilization rate with a money DSGE framework, based on the asymmetric effects of monetary shocks as the theoretical foundation. The article take the Granger test of the capacity utilization and inflation, the result shows that the capacity utilization rate is Granger of inflation, and the Cointegration test results show that inflation and capacity utilization rate exist the long-term stable relationship. Then we constructs a SVAR model for further research the relationship between the capacity utilization rate and inflation, the results showed the capacity utilization rate positively correlated with inflation, the same fluctuation of capacity utilization and inflation in the same direction. This verify the existence of the asymmetric effects of monetary shocks. It also can interpret the existence of excess capacity dilutes the effect of Super-currency stimulating the inflation. And this may explain the excess capacity and inflation exist at the same time, specially the "strange phenomenon" of they are in the low level.Research idea of this study are as follows:first, explain the background and significance, and summarize the related research. Secondly, based on the previous research of contains the capacity utilization rate with a monetary DSGE model, analyzes the asymmetric effects of monetary shocks. Finally, we construct a SVAR model to analyze the relationship by use the inflation and capacity utilization data of the1988-2013years. Specific research framework as follows:The first chapter is introduction. The introduction part introduces the background and significance of topics, research methods、research content and the innovation and shortage of this paper.The second chapter is literature review. First introduced the study of capacity utilization rate and inflation of Chinese and foreign scholars, and then importantly introduced the contains the capacity utilization rate with a money DSGE model, analyzes the asymmetric effects of monetary shocks. And take it as the theoretical basis for this article.The third chapter is the calculation of the capacity utilization in China through the estimate capacity utilization model. Based on the calculated results we can find our capacity utilization rate has been in a downward trend in recent years.The fourth chapter is the empirical analysis based on SVAR model. This part mainly includes the structural of model, selection of variables, data description, and the experimental results,then we analysis of experimental results. This article selects the data about capacity utilization and inflation of1988-2013annual, through the SVAR model, we can get the positive correlation between the two parts. Thus demonstrates the the existence of low capacity utilization rate and low inflation at the same time, which proved excess capacity dilutes the effect of Super-currency stimulating the inflation.The fifth chapter is policy recommendations. According to the theoretical basis and the empirical results, we suggest that government should control the change of inflation strictly, to avoid inflation greatly changes affect the economic.The main contribution of this paper is to explain the existence of super currency and low inflation by the excess capacity. That because the asymmetric effects of monetary shocks, which will make the excess capacity "absorb" part of Super-currency, and it distorts the conduction mechanism of Super-currency stimulating inflation. It explains this strange phenomenon of the coexistence between Super-currency and low inflation.