A Study On Asymmetry In The Persistence Of Chinese Inflation

With the high development of the economy, inflation has been through large fluctuation, meanwhile as the monetary policy intermediate target, the money supply trend deviates from the real economic status, and its macroeconomic regulation and control effects become weaker. As inflation has profound influence on economy, we do some empirical researches to give advice on the choice and enforcement of monetary policy intermediate target from the perspective of inflation persistence features. Inflation persistence is one important implied characteristic of the inflation series dynamic, and it affects monetary policy come outs through influencing the transmission mechanism of monetary policy, further more what the monetary policy goals are, how to get to the goals, and the cost of anti-inflation under the multivariate structure(New Keynesian Phillips curve and Taylor's rule).To investigate the dynamic feature of inflation persistence quantitatively, we develop an unobserved components model with Markov-switching parameters and permanent-switching constraint, and use the implied impulse response function of reduced UC model to measure inflation persistence. As a result, we found there is a regime change in the inflation persistence in the mid-1960's,from high to low,and with the fact that inflation faces downward pressure and its expectation also becomes lower, this means that the relationship between inflation and output changes, becoming more sensitive, which by the way require the focus and method of monetary policy to change. In the last part of this paper, we analyze how the former change means for the feasibility of inflation as the monetary policy immediate target.