Diagnostic Checking For The Heterogeneities Of China Public’s Inflation Expectations Based On The Analysis Of Three-Dimensional Panal Data

In recent years, with the development of China’s economic and financial system reform, the relevant functional departments pay increasing attention to the role of the public inflation expectations in the transmission of monetary policy, and have stressed the need to manage inflation expectations for many times in different occasions. The work of controlling the public inflation expectations appears to be more important and urgent.However, modern mainstream macroeconomic theory assumes that the public’s inflation expectations are homogeneous in nature, that is, the assumption that all consumers in the economy will make the same predictions about the future inflation. The assumption of homogeneity, applied to the study of the inflation expectations in China, is sufficient to be aroused suspicion in at least two following reasons. First, the current situation of China’s economic development is not balanced. This "one size fits all" approach is not quite accurate and reasonable, and it needs to take full account of the impact of regional heterogeneity, departmental heterogeneity and temporal heterogeneity in control of the inflation expectations; second, from the perspective of monetary policy, recognizing the heterogeneity of inflation expectations can create conditions for the development of more appropriate monetary policy.Unfortunately, the existing paper about these three heterogeneities is rarer, and the diagnostic checking for their existence is even not reported in the literature.Therefore, this paper proposes a robust method based on the results of Wu and Zhu (2011) to respectively test for the three heterogeneities in the three-dimensional panel data models. Specifically, in testing for the regional heterogeneity, we first make a centralized transform of residuals to "filter" the possible departmental heterogeneity and time heterogeneity, and establish an artificial auto-regression model. Then construct the test statistics based on the OLS parameter estimates of the artificial auto-regressive model and its asymptotic property is obtained. In the testing for the departmental heterogeneity and time heterogeneity, the similar statistics and its asymptotic properties can be obtained. The constructed tests are one-sided, and are asymptotic standard normal distributions under the null. At the same time, the Monte Carlo simulation tests designed are carried out. The results show that the test statistic can be well detected and determine whether these three exist, and have a higher test efficiency.At last, we use the method to test the existences of the three heterogeneities for the CPI data during the 11th Five-Year Plan and the 12th Five-Year Plan of China. The results show that:on the one hand, whenever in the period of the 11th Five-Year Plan or the 12th Five-Year Plan of China, the regional heterogeneity and the departmental heterogeneity of Chinese inflation expectations existed significantly; on the other hand, the existence of the time heterogeneity of inflation expectation during the 11th Five-Year Plan of China is significant, but in the 12th Five-Year Plan it is not very significant.The main conclusions mentioned above has a strong operating enlightenment for policy:firstly, Chinese relevant departments, without violating the premise of monetary policy unity, can choose differentiated monetary policy tools, and the implementation of monetary policy can be carried out differently in the different regions or departments; Secondly, the government should attach great importance to the public inflation expectations’time heterogeneity, and strengthen the monitoring on trend of the public inflation expectation. According to the results of the monitoring, appropriate and timely means and methods should actively be taken to guide public inflation expectations’ change.